The Atlantic recently ran a piece about how even the middle class can’t afford to live in New York anymore. Underlying this article is the assumption that New York is iconically successful. That New York is impenetrably wealthy. That New York is an American success story—with a few hitches attached.
“Compare with Detroit…”
Yet New York too once was in Detroit’s shoes, requesting the federal government for a bailout.
Nowadays, bailouts usually refer to Fannie Mae, Goldman Sachs, General Motors and Chrysler, and potentially the UK banking systems if bailouts are your passion project. (At this time, I think it’s appropriate to note that the term bailout is nautical in origin — it means to remove water from a sinking vessel using a smaller bucket.)
These bailouts, while certainly controversial, were generally deemed “necessary” because, “What would America be without banks and cars?”
Yet consider New York.
In 1975, New York City was in institutional and civic decay. As the city neared bankruptcy, then-mayor Abe Beam and a team of metro NY mayors petitioned President Ford for federal aid. This first proposal, which would have in effect nationalized municipal debt, was met with staunch resistance from Ford and his cabinet. That October, Ford told the Press Club, “I can tell you now that I am prepared to veto any bill that has as its purpose a Federal bailout of New York City to prevent a default.”
Without a deus ex machina in sight, New York very quickly shaped up its financial act in regards to labor contracts, pension funds and other expenses that ring true for Detroit today. In fact, two months later, Ford felt he could petition Congress in good faith to provide a straight-forward, short-term loan to cover expenses until the city’s next revenue period began in the spring of 1976. In his statement to Congress, when questioned on his so-called changed position, Ford said,
“The answer is very simple. New York has bailed itself out, because on October 29, when I made the speech before the Press Club, it was anticipated that on June 30 of 1976, there would be a cash deficit of $3,950 million in the New York City situation. Under the plan that I have embraced, on June 30, 1976, New York City will have a zero cash balance. So New York City, by what they have done in conjunction with New York State, with the noteholders, with the labor organization, the pension fund people, they have bailed out themselves.”
Many would argue that refusing to bailout the city until they took responsibility was the best thing that could have happened to New York. (Some argue that even covering those temporary expenses was money poorly spent.) But the fact remains that, rather than a blight on the landscape, we now have the bustling center of commerce that is a hallmark of American culture. It still faces massive expenses, many of which other cities experience to a lesser degree, but the sort of wealth that New York has enjoyed (and has buoyed it through tough times) could only have been self-created.
So people who feel that a bailout—or all the liberal economic strategies we’ve seen thrown around in the past decade—is the only way to restore Detroit need to remember this history. Further, they’ve forgotten that wealth can not ever truly be restored, but rather, created anew. You can’t repeat the past, Gatsby.