Detroit. (Courtesy of Wikimedia Commons)
Detroit has now declared bankruptcy. A judge has ruled the act illegal—a decision that may or may not stand. Naturally, New York’s fiscal crisis thirty-eight years ago comes to mind, though in many respects the differences are more important than the similarities: New York was one of the world’s financial and cultural capitals, its private economy largely thriving; as such, the news of government’s bare coffers was shocking, a revelation, something the world at first had a very hard time getting their mind around. While what’s happening to Detroit, no one’s idea of an economic capital, isn’t surprising at all.
But note a striking similarity: reaction of those on the right.
To wit: here comes Senator Rand Paul, saying nothing would be more splendid than to let a major city go bankrupt—because with bankruptcy, you get “new management, better management, and by getting rid of contracts, contracts that give you where [sic] public employees are getting paid twice what private employees are and things come back more to normal.” No matter that so far the White House says only that it’s “monitoring” the situation, though former Obama auto czar Steve Ratner says he hopes Obama will pump federal money into the city. That is what Paul distorted into his claim that “apparently” the president is “making indications that Detroit can be expected to be bailed out.” And that, he says, will happen only “over his dead body.” Because municipal bankruptcy would give Paul the chance to do what right-wingers like him always do, starting with New York in 1975: make excuses for slashing the public sector.
Shock doctrine stuff, in other words. The unwinding of what’s left of the welfare state, by whatever means at your disposal. Same story, then and now. In 1975, its most prominent voice was William Simon, President Ford’s Treasury secretary, who leveraged his work as the butcher of New York to become a major conservative movement leader.
The roots of the Great New York City Fiscal Crisis lay in the recession of 1974–75, which hit the Northeast with a speed and force all out of proportion to the rest of the country. New York had always supported a program of middle-class entitlement unlike anywhere else, a sort of socialism in one city: subsidized housing and daycare centers; free college at the world-class City University of New York; free museum admission; nineteen municipal hospital, many of them world-class; free directory assistance—amenities that seemed only natural for a metropolis transforming itself, in the boom years after World War II, into the greatest city in the world.
It worked, until it didn’t. The city’s manufacturing base declined, and the unemployment rate, under 5 percent in 1970, hovered above 12 percent—shades, but only shades, of Detroit. White middle-class New Yorkers, fearing crime, fled to the suburbs—definite shades of Detroit there. Federal and state aid leveled off; expectations that Richard Nixon’s national health insurance bill would relieve the city of its massive outlays for Medicaid came a cropper when Congress voted it down (conservatives because it was too generous, liberals because it was not generous enough). Bills came due that this newly atrophied level of revenue simply could not cover: by the the end of 1974, the city’s debt was $11 billion, a third of that in short-term notes soon to come due, and over 11 percent of the city’s spending went to interest payments on that debt—to banks, suddenly reconsidering their lending practices in a recession. Other tax shelters started looking more attractive, So did other customers—for instance, some resource-rich Third World nations. So it was that banks started to asking for some of that money back, and started charging more interest to let them rent more.