Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics

One only has to look at an electoral map from the 2016 presidential contest to get the feeling that America’s cities are at odds with the rest of the country. Kim Phillips-Fein’s excellent new book, Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, vividly depicts a period when New York was seen — not always positively — as an archetypal example of urban liberalism. Much of the emergency that defined New York’s mid-1970s character revolved around debt, accounting practices, and municipal bonds, but in Phillips-Fein’s hands it is not only exciting but extremely relevant, too.

In 1975, the city teetered on the brink of financial collapse, with no one eager to come to its rescue. (The New York Daily News‘s legendary headline “Ford to City: Drop Dead” succinctly captured the position of the executive branch.) Fear City begins by laying out how Gotham had reached this perilous point. New York, more than any other American city, Phillips-Fein writes, had “an unusually expansive and generous local welfare state”; in addition to a sprawling network of public schools, public libraries, and playgrounds, its activist public sector had helped create two dozen municipal hospitals, ample public housing, day care centers for low-income families, drug-treatment centers, an inexpensive subway system, free entry to world-class museums, a network of tuition-free colleges, and more.

Many saw the city’s “generosity” as the cause of its financial distress, but Phillips-Fein points to a wider range of political and social factors. Federal subsidies for homeownership and federal investment in highways facilitated the white middle class’s postwar exodus to the suburbs, which greatly reduced the city’s tax base. By the early ’70s, the local loss of manufacturing jobs plus a nationwide recession led to an increase in spending on welfare for the poor, who, in New York, were increasingly African American and Latino. Faced with the choice of cutting popular services, raising taxes, laying off city employees, or borrowing money, three successive mayors — Robert Wagner, John Lindsay, and Abe Beame — felt there was no choice but to keep borrowing, in the author’s words, “[displacing] the conflicts the city confronted in the present onto the future.”

That future arrived in 1975. Phillips-Fein, a professor at New York University’s Gallatin School of Individualized Study and the author of 2009’s Invisible Hands: The Businessmen’s Crusade Against the New Deal, describes the city’s nosedive in a fast-paced, gripping account. The first brush with bankruptcy came in April, but Governor Hugh Carey’s creation of the Municipal Assistance Corporation (MAC), which gave New York emergency state aid to repay creditors in exchange for control of the city’s financial management, pulled New York from the brink.

The city was so deep in the red, however, that it was only a temporary fix, and by October New York was again unable to meet its debt obligations. Only the federal government, it seemed, could bail the city out this time, but President Ford, who blamed New York for its problems, was unmoved. Secretary of the Treasury William Simon, Chairman of the Council of Economic Advisers Alan Greenspan, and Ford’s chief of staff, Donald Rumsfeld, together urged him to let the city default, believing that bankruptcy would not only teach New York a lesson but would send a strong warning to other cities about the perils of government spending. Politicians and bankers who favored helping the city worried that default would send a different kind of message — that the symbolism of a bankrupt New York City would set off a nationwide financial panic.

Phillips-Fein, putting archival sources like meeting minutes to dramatic use, reveals all the last-minute machinations to forestall disaster. At a White House meeting, an emotional Mayor Beame, pleading with the president for help, argued that European tourists, after all, weren’t coming to America to visit Detroit or Columbus; an indignant Ford reminded Beame that he himself was from Michigan, while even the vice president, New Yorker Nelson Rockefeller, quietly warned the mayor not to “get carried away.” Beame’s point, though clumsily made, resonates in Phillips-Fein’s account, as the author also suggests that the country owed something to its preeminent city. She notes, for instance, that New York had historically “offered a vast program of social benefits to African Americans, who had come north because they were fleeing the violence and exclusion of Jim Crow; in other words, the city had picked up the bill for the sins of the American South.”

New York’s black residents would be among those to suffer the most when the city was ultimately saved from bankruptcy for the second time. This time, Governor Carey pushed through a law allowing the city to pay only interest, not principal, to creditors for one year. The city’s finances were put under the control of a corporate-leaning Emergency Financial Control Board. When the state legislature also approved large tax hikes, Ford at last committed to a financial aid package for the city, claiming to be satisfied that the city and state had committed to a future of fiscal austerity.

Indeed it had. “Underneath all the technicalities of the refinancing agreements,” Phillips-Fein notes, “was a promise to fundamentally restructure how New York City worked — to drastically cut the budget and shift spending away from social services.” Garbage piled up in the streets after sanitation layoffs; public schools squeezed forty-five or fifty kids into classrooms at overcrowded, understaffed schools; the FDNY laid off hundreds even as fire deaths were on the rise. The book gets its title from “Welcome to Fear City,” a pamphlet created by police officers embittered by layoffs, warning visitors to New York to stay off the subway and avoid being on the streets after 6 p.m. Crime worsened and poverty deepened. (Meanwhile, art and music scenes thrived amid the squalor, and one wishes Phillips-Fein had paid more than glancing attention to that milieu.)

Underlying these immediate effects was a deeper transformation. 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,” the author writes. New York committed, above all else, to making itself attractive to business and investors. In an allusion to the Emma Lazarus poem inscribed at the base of the Statue of Liberty, Felix Rohatyn, the financier who’d chaired the MAC board, crowed, “This time around, New York City should look to Europe and say, ‘Give me your rich!’ ” Here are the roots of the city we have today, where extreme wealth and extreme poverty exist side by side. In one shift that now feels particularly portentous, in 1976 a government agency that had roots in low-income housing turned instead to commercial real estate, giving a sweetheart deal for a flashy midtown hotel to a brash young developer. Who was it? Here’s a hint: four decades later, during his campaign for president, he repeatedly said that minorities in cities were “living in hell.”

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