On October 30, 1975, the New York Daily News printed the most famous headline in its history: “Ford to City: Drop Dead.”

The previous day, President Gerald Ford had delivered a speech at the National Press Club in Washington on the looming bankruptcy of New York City. Once inconceivable, such a collapse fit with the climate of the time. American politics in the autumn of 1975 had taken on the qualities of a grotesque. Saigon had fallen just a few months before Ford’s speech. The memory of President Nixon’s resignation in the midst of the Watergate scandal was still fresh. Oil shocks in 1973 had made it clear that the United States could not control supplies of the black gold on which its economy depended, and rapid inflation throughout 1974 and 1975 transformed each paycheck into a game of chance. Across the country, people had been boycotting meat and sugar to protest exorbitant prices. Massive corporate bankruptcies, near-bankruptcies, and financial collapses shook familiar business icons: the Penn Central railroad in 1970, the defense giant Lockheed in 1971, and the Long Island–based Franklin National Bank, the twentieth largest in the country, in 1974.

The prospect of New York City’s collapse seemed a further terrifying lurch. The leading men at the city’s biggest banks—including First National City Bank (the forerunner of Citibank), Morgan Guaranty, and Chase Manhattan—had spoken out in favor of federal aid for New York. Executives from around the country had traveled to Washington to testify that if the city went under, the fragile national economy might topple as well. Cold Warriors warned that the city’s bankruptcy would bolster the Soviet Union. Lawmakers in Washington, Albany, and New York City itself eagerly awaited any hint that Ford might lend his support to a bailout deal. How would it look—what would it mean—for New York City, the country’s largest metropolis, the home of Wall Street, the heart of American finance, to wind up in bankruptcy court?

But President Ford and his closest advisers—a circle that included his chief of staff, Donald Rumsfeld, and the chairman of his Council of Economic Advisers, Alan Greenspan—strongly opposed federal help for New York. They were convinced that the city had brought its problems on itself through heedless, profligate spending. Bankruptcy was thus a just punishment for its sins, a necessary lesson in how the city should change to move forward. And as far as the national economy was concerned, Ford and his circle believed that the banks, the businessmen, and the city were scaremongering, that the economic impact of the city’s financial collapse would easily be contained—that the market had already factored it in. Accordingly, Ford promised to veto the bills that were circulating through Congress to provide emergency aid to New York. Instead, he supported reforms to existing bankruptcy regulations that would make it easier for the city to file. The meaning was clear: New York could go bankrupt, and the federal government would do nothing to help.

For the president, as for much of the nation, New York City stood for urban liberalism, an example of the central role that government might play in addressing problems of poverty, racism, and economic distribution. At the National Press Club, Ford challenged New York’s network of municipal hospitals and its free public university as lavish, unnecessary extravagances. The federal government should not give a penny in bailout funds that allowed New Yorkers to continue these indulgences, he said. Why should other Americans “support advantages in New York that they have not been able to afford for their own communities?”

The harsh lesson was intended not only for New York. Ford believed that the United States had to face a new reality: the country—indeed, the world—had entered an era of slowed economic growth, an age of austerity, in which it was no longer possible for the government to pay for many social services to which the American people had grown accustomed. The citizens’ basic attitude toward government had to be transformed. Americans needed a revived philosophy of individual initiative centered on fiscal responsibility and limited spending. In the last few minutes of his talk, Ford scolded the nation: “If we go on spending more than we have, providing more benefits and more services than we can pay for, then a day of reckoning will come to Washington and the whole country just as it has to New York City.” And “when that day of reckoning comes, who will bail out the United States of America?”

On that note, the president departed for California. He was embarking on a fundraising trip for his 1976 presidential campaign on the home turf of his main rival on the right: the former governor of the state, Ronald Reagan.

Even before Ford’s speech, there were many in New York who felt that they had been abandoned. A few months earlier, in the spring of 1975, a woman named Lyn Smith wrote a letter to her senator, the liberal Republican Jacob Javits. Smith described the housing conditions in a South Bronx neighborhood near her home. The city, it seemed to her, had stopped making any effort to demolish burned-out buildings, despite their dangers. “When a house burns down they don’t destroy the frame, they leave it standing—you never know when it’s going to fall. A little boy I know or knew named Ralfy lives in the South Bronx he was playing in one of the broken down houses and he fell through the floor he’s dead now but if that building had been torn down he wouldn’t be dead.” Smith’s tone—flat, apathetic, resigned, quietly bearing witness but hardly even launching a protest—is perhaps the most haunting aspect of her missive. “I don’t know why I wrote this letter you’ll probably never read.”

For a woman like Lyn Smith, austerity meant not only budget cuts but a political mood of bleak hopelessness. The fiscal crisis involved discarding a set of social hopes, a vision of what the city could be. For Ford and those around him, the New York City fiscal crisis was a story of the bankruptcy—economic and moral alike—of liberal politics. It proved that using government to combat social ills would end in collapse. It provided a spectacular repudiation of the Great Society, the War on Poverty, even the New Deal. But for ordinary people, the fiscal crisis meant something different: it marked a change in what it meant to be a New Yorker and a citizen. We are still living with the consequences of this transformation today.

Forty years after the fiscal crisis, the 1970s remain a touchstone of New York City politics, the nightmare era to which no one wants to return. The classic cinema of the 1970s and 1980s memorialized these years of disinvestment and blight in films such as Taxi Driver, The Panic in Needle Park, The Taking of Pelham One Two Three, and Fort Apache, The Bronx, which portrayed New York as a sea of filth and despair, an urban cesspool. The decade is widely remembered as a time of crime, violence, lawlessness, disorder, graffiti—covered subways, inflation, unemployment, and budgets completely out of control—an era of social breakdown, economic malaise, and political collapse.3 The politics of the country more generally are recalled with a similar sense of failure: this is the decade when the old American dream fell apart, when unemployment and inflation replaced the steady prosperity of the postwar years, and the international supremacy of the United States ceased to be something to take for granted. As Christopher Lasch wrote in the opening pages of his 1979 bestseller, The Culture of Narcissism, “Those who recently dreamed of world power now despair of governing the city of New York.”

The common wisdom about the crisis holds that its primary cause was the flagrant irresponsibility of politicians such as John Lindsay, the idealistic mayor in the late 1960s who saw fighting poverty as a top priority for city government, and, even more, his successor Abraham Beame, who submitted to political pressures that endangered the city’s solvency. Lindsay threw money at entrenched social problems without regard for budget realities; Beame was unable to resist the newly powerful public sector unions. The result of their foolish overspending was that the city soon found itself with debts that it had no reasonable way of ever paying back.

At the same time, paradoxically, the crisis is sometimes noted as a great triumph for New York: the moment when the city repudiated an older tradition of irresponsible altruism. Everyone—labor, business, the banks, ordinary citizens—is thought to have accepted the need for austerity and chipped in. Many of those who led New York through the valley of the shadow of default remember it as a time of solidarity, an era when the common people were willing to do what it took to rescue the city from its shame. As Felix Rohatyn, the Lazard Frères investment banker who helped to broker the deals that ultimately kept the city out of bankruptcy, later wrote, “The people of the city were willing to make real sacrifices as long as they believed that those sacrifices were relatively fairly distributed, that there was an end in sight and that the result would be a better city, a better environment, and a better life.”

This book takes a different view. Here, the budget comes to life as the place where opposing visions of the city’s future were contested, fought out, and finally decided. For much of the twentieth century, New York City did have an unusually expansive and generous local welfare state, the result of generations of organizing by labor unions, reform groups, and working-class and poor people. The institutions they built were hardly extravagant or unnecessary. New York’s public sector—which made the city, in the words of historian Joshua Freeman, something like an island of social democracy in the midst of postwar America—helped to create much of what was most distinctive in the city: its democratic sensibilities, its working-class ethos, its common public life. The fiscal crisis permanently altered these ideas and this vision. Contemporaries were stunned by the swiftness of the cuts to social services, enacted at a time of intense need. And in addition to the pain caused by the contraction of the public sector, the experience of the fiscal crisis seemed to delegitimize an entire way of thinking about cities and what they might do for the people who live in them.

But just as the city’s pre-crisis spending should not be treated as wasteful and irrelevant, its financial difficulties should not be reduced to a parable of municipal irresponsibility or a story about how local governments tend to succumb to the insatiable demands of pressure groups. The dynamics of the crisis created a sense that New York City’s problems were entirely its own fault, which made it harder to see where the power really lay: at the level of the state and the federal government, which had created the policies that led to the unraveling of the city. It was federal subsidies for homeownership and federal investment in highways, for instance, which encouraged middle-class residents to move from New York to the surrounding suburbs, depriving the city of income tax revenue even though it remained the economic motor of the tristate area. And it was federal policies that made it easy for manufacturing companies that had once formed the city’s economic base—such as the celebrated garment industry—to move away in search of cheaper labor, first to the southern United States and then overseas. Nor did New York create the racial fears and hostilities that led middle-class white people to flee to the suburbs as the city drew in more African Americans, as well as Latinos and other immigrants. America’s political system failed to adequately confront such challenges, just as it failed to confront the urban poverty that was the result of capital flight and deindustrialization.

The city’s politicians tried to skirt these problems in myriad different ways, but in the city budget they proved impossible to avoid forever. The city turned to debt in an effort to sidestep an open debate over whether it could continue to make good on its efforts to carve out a distinctive set of social rights. While the city’s financial problems were real enough, its elected leaders’ evasion of these political arguments—the attempt to use debt to settle problems that were at heart political—was the deeper failure. New York expanded its borrowing at a time when public debt was growing across the country, when bankers were enthusiastically marketing and buying its bonds and notes. Although they would later excoriate the city for its irresponsibility, these financiers played a central role in encouraging its indebtedness when it suited their purposes to do so.

Finally, it is important to recognize that many of the New Yorkers most affected by the budget cuts did not meet the crisis with a spirit of equanimity and sacrifice. To remember it this way is an act of forgetting, for the retrenchment brought into the open fierce disagreements over the city’s future. It is certainly true that people in the economic and political elite quickly reached consensus that sharp budget cuts and the restructuring of the city government were the only way back to fiscal health. Beyond the inner circles of power, though, there was far more resistance to the transformation of New York. Rather than accept a shrunken version of their city, ordinary New Yorkers loudly protested the contraction of the public sphere. When they were faced with the withdrawal of services that had become tantamount to rights, many people asserted their demands all the more forcefully, as long as they were able to do so.

They were driven to do so because they intuited that New York would emerge from the crisis a changed metropolis. The people who would come to have the deciding vote would be those who belonged to the moneyed elite: the ones who could decide whether or not to invest in New York, who had the access to private capital on which, it was suddenly clear, the city relied. The 1970s crisis was a crucial point on the way to a new New York, helping transform the city into the highly stratified metropolis it is today—a city of apartments bought as investment properties for the wealthy of the world even as almost 60,000 New Yorkers live in homeless shelters, a city that’s among the most unequal in a nation that has itself become radically more hierarchical than it was during the postwar era. Today, many people describe this transformation as “progress,” seeing the shining contemporary city as a vanquishing of the dismal past. This book, though, suggests that in the process, New York lost as much as it gained. The struggle over whom the city government would serve, and on what terms, echoes the deepening conflict over the future of the United States as a whole.

 

Copyright © 2017 by Kim Phillips-Fein. Excerpted from Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics.

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Kim Phillips-Fein is the author of Invisible Hands: The Businessmen’s Crusade Against the New Deal. She teaches history at New York University’s Gallatin School of Individualized Study, and has written for The Nation, Dissent, The Baffler, The Atlantic, and The New York Times, among other publications. She lives in New York City.