Public Thinker: Kim Phillips-Fein on Austerity and the Fall of New York

Thinking in public demands knowledge, eloquence, and courage. In this interview series, we hear from public scholars about how they found their path and how they communicate to a wide audience.
With New York City teetering on the brink of fiscal collapse at the end of 1975, Congress passed ...

With New York City teetering on the brink of fiscal collapse at the end of 1975, Congress passed, and President Ford signed, legislation that authorized loans to stabilize the City’s finances. The terms of these loans, Treasury Secretary William E. Simon later recalled, were “so punitive, the overall experience so painful, that no city … would ever be tempted to go down the same road again.” In Fear City, Kim Phillips-Fein explains how the fiscal crisis of the late 1970s marked a crucial turning point in American history. Julia Ott sat down with Prof. Phillips-Fein to discuss how the echoes of that moment continue to be heard in the austerity politics of the current day.

Julia Ott (JO): Most people, and certainly most New Yorkers, have some idea that the City experienced an acute fiscal shortfall in the 1970s. They are aware that there was a breakdown and a decline in the quality of life at around the same time. And they know that New York City today is a very different place than it was in the ’70s. Can you sketch out that arc for us? What was the fiscal crisis?


Kim Phillips-Fein (KPF): Well, Fear City is about the moment in 1975 when New York’s government almost went bankrupt.


JO: You even found the press release announcing a default that the City almost sent!


KPF: Yes, it was a real possibility that the City would go bankrupt. The book tells the story of how this happened, why this government found itself in this predicament, and what happened in response—both the budget cuts that were enacted, and the protests against them.

It also makes the case that the spectacle of New York’s failure became a powerful symbol for the problems and dilemmas of urban liberalism, both in New York and nationally. In the postwar years, New York had an unusually extensive and generous social welfare state, remarkable in the American context—one that included many public hospitals, free tuition at the city university, and a vast public transit system. But this public sector was becoming increasingly vexed as the 1960s wore on, and the problems that emerged in 1975 had been building for some time.

The City had almost experienced a fiscal crisis in the mid-1960s, when Mayor Robert Wagner took on increased debt and insisted that social spending should be driven by needs, not fiscal constraints. But the war on poverty and a massive influx of federal funds, as well as some adjustment of local taxes, staved off that conflict.

In the 1970s, the political situation was very different. The Ford administration was not going to pour new money into cities. New York’s manufacturing jobs and overall population were declining. And the position of the banks that financed the City was different too: they were expanding their international investments and they had less desire to hold municipal bonds.

The mayors of the city—first John Lindsay, then Abraham Beame—rapidly expanded the City’s short-term debt over the course of the early 1970s, rather than opening a serious political conversation about the City’s services and how to sustain them. This accumulation of short-term obligations is what left the City vulnerable to the fiscal crisis. Eventually, the banks that had been financing the City in this fashion refused to do so any longer. And when they did, they blamed the leaders and the poor people for the City’s financial predicament. These bankers pressed for major budget cuts that ultimately slashed the public workforce by about 20 percent over the following five years. Hospitals closed and CUNY imposed tuition for the first time. One important argument I make is that this austerity was not easily accepted; it met with fierce protests throughout the city.

In other words, the fiscal crisis is one episode in a much larger story that raised questions about what a government should do, who should pay for it, and how political support for a project of redistribution can be won, and lost.


See How The City Divides Us

By Sam Holleran

JO: You make a very strong case in the book that readers should look at a city budget not as some objective snapshot of revenues in and payments out at a given moment, but as a reflection of more long-standing political debates about social priorities. The budget, you tell us, is about class conflict, about social conflict.

Would you say that the fiscal crisis was a rupture in the political landscape, a pronounced change in direction for the city? Or do you think it was more a moment in which long-standing tensions and conflicts bubbled up, with some groups, much more than others, able to seize the moment for their advantage?


KPF: I do see the fiscal crisis as a turning point. But, certainly, the turn built on longstanding conflicts that surfaced with special force only then. There is a body of scholarship that treats the fiscal crisis as not really that serious a shift in direction. The argument is that the city’s public sector was crumbling before the actual fiscal crisis, and that something like neoliberalism was emerging, as private actors took basic city services into their own hands. In this view, the fiscal crisis matters less, since the transformation was taking place anyway. I am sympathetic to that point of view, but …


JO: But surely the fiscal crisis amplifies things, and projects concerns about urban goods and services into larger political questions about the fate and the viability of mid-century liberalism on a national, and really even global, scale.


KPF: Yes, I think the crisis is a moment that crystallizes a set of ideas about the weaknesses and failures of the state, and gives critics from the right the opportunity to argue that any social welfare system must inevitably wind up in such dire straits. One of the reasons these ideas became so widely held in New York, and, in certain ways, the country as a whole, was because of the drama and spectacle of the fiscal crisis.


JO: Yes.


KPF: If you could imagine somehow a history absent the fiscal crisis, I don’t think that the right’s dour ideas would have had quite the same impact and force.


JO: Something else that struck me is the sense of the illegitimacy of the welfare state. The objection isn’t just that it is economically unsound, or infeasible. A questioning of its basic legitimacy and plausibility sets in relatively quickly in 1970s New York City. The ambition of the public sector does not come back once the fiscal picture improves.

You write extensively in the book about what urban liberalism meant for New Yorkers: what people believed they were entitled to and could expect from their urban government. Tell me what you think a contemporary New Yorker would find most surprising about that world, or most appealing. What’s most different?


Tax the Rich?

By Julia Ott

KPF: For people living in New York today it can be, I think, shocking to realize that the daily experience of extreme inequality in the city was not always as it is now. In the middle of the century, you don’t see mass homelessness. You don’t have constant acceleration of rents. You don’t have the ubiquitous visibility of extreme wealth, with apartments that sell for millions and millions of dollars to financiers who don’t even plan to live in them as primary homes. Today, the city is home to more than 80 billionaires. The combined wealth of just the top five (including Michael Bloomberg and David Koch) tops $160 billion—and we are complaining about how to come up with money to fix the subways!


JO: Back then, you wouldn’t have all the empty storefronts in very affluent areas.


KPF: The “Bleecker Street blight” phenomenon, where it’s too expensive for even very high-end, luxury shops! One aspect of city government that really stands out for me over the postwar years is CUNY, which expands dramatically over this period. The issue is not just that it is tuition-free (in fact, there were always fees, so it was never entirely free), but that the system of free public higher education was expanding in New York City in the decades before the fiscal crisis.


JO: Yes, and employing lots of people.


KPF: Employing lots of people and educating lots of people. CUNY still exists and it is still very unusual—most American cities don’t have anything like this. It’s not free, but it is comparably inexpensive. It’s a remarkable institution, even now.

In the mid-20th century, though, it was even cheaper, and it was adding all these new campuses, both four-year and two-year schools. Still, many of the four-year schools had very low numbers of black or Latino students (even City College, even though it is essentially in Harlem). In 1970, the system adopted open admissions, guaranteeing a space at one of the CUNY campuses to any New York City high school graduate who wanted to attend. This helped to create a sense of higher education as a right. As a policy, that’s probably the most distinctive and different from what we see now. The healthcare system also was unusual.


JO: Yeah, we’re just sitting very close to the old St. Vincent’s Hospital and I live close to the old Cabrini Hospital. Both of these have been transformed into luxury eight-figure—not seven-figure, eight-figure—apartment complexes. Just a stone’s throw away from where we’re sitting right now sits an amazing physical manifestation of the historical transformation that we’re discussing.

Often, what people remember about New York in the 1970s is the arson wave. As sports journalist Howard Cosell supposedly (and perhaps apocryphally) said during the 1977 World Series, “Ladies and gentlemen, the Bronx is burning!” In your book, you describe the devastation as a result of the fiscal crisis. Can you tell us more?


KPF: Even before the crisis, the crime and unemployment rates are rising and the fire wave is underway. That is part of what makes the cuts that follow the crisis so terrifying. There were such serious problems already. That this could happen, that the resources could be withdrawn despite the severity of the difficulties …


How Gentrifiers Gentrify

By Max Holleran

JO: At the moment when people need it the most.


KPF: Yes, when people need it the most. I think the cuts only wind up intensifying those problems.


JO: I think that’s an important corrective. The story we tell about the transformation and economic revival of New York City is that the new fiscal discipline on the part of the City had these trickle-down effects that eventually put people back to work. More businesses opened, people got jobs, crime diminished. What you hint at in the part of the book that deals with the budget cuts, the blackout of 1977, and the aftermath of the crisis is that the City’s austerity policies actually exacerbated and accelerated—or even created—many of the serious social problems we associate with New York in the 1970s.

I know you’re a native New Yorker. So, where were you in ’75 to ’77?


KPF: Well, I was born in late August of 1975—right at the high point of the crisis, almost exactly when the Emergency Financial Control Board (that’s the state agency that held final power over the City’s budget) was created.


JO: Oh, wow.


KPF: Right around that time. I grew up in downtown Brooklyn over the years that followed the crisis. My mother says she doesn’t really remember much about the fiscal crisis.


JO: She was a little preoccupied!


KPF: She was preoccupied. My parents at that point were both working at Lincoln Hospital, which is a public hospital in the Bronx, and which had many problems at the time in terms of the quality of care it was able to provide. They had been very active themselves in different efforts to improve services at the hospital. My mother had gone to a part-time schedule after I was born, and tried to continue practicing medicine at Lincoln. Then, at some point, a part-time schedule was no longer an option. I haven’t researched this, but I suspect that the decision to no longer permit this flexibility was at least partly a result of the tightening of resources that followed the fiscal crisis.

My childhood memories are certainly of a different New York. I remember the X-rated movie theater on Court Street we passed on the way to school. I remember there was a methadone clinic down the block. I recall more graffiti on the subways. But I don’t think I ever experienced these as frightening or scary. I never felt unsafe on our block, or in our neighborhood. This was the neighborhood where Jonathan Lethem set his novel The Fortress of Solitude, but to me it never seemed dangerous, threatening, or unsettling.


JO: And do you have personal memories of the transition of the city after 1977?


KPF: Well, I remember the changes on Smith Street, away from the neighborhood shoe stores and bodegas and five-and-dime stores. Now there’s a Starbucks instead of the variety store at the bottom of the block. It looks and feels very different.

Growing up, my block combined older Italian homeowners with Latino, especially Puerto Rican, and Middle Eastern tenants. That is much less true today.


JO: I assigned this book for class, and we spent a lot of time talking about the cover.


The Big Picture: Trump’s New York

By Kim Phillips-Fein

KPF: I have never talked to the artist who designed the cover, but I thought that it captured the main themes of the book so perfectly, and especially alongside the frontispiece. When you open Fear City, the first thing you see is the grinning skull of the “Welcome to Fear City” pamphlet. This was produced by a coalition of police unions after the City announced layoffs in June 1975. Their plan was to hand it out at the city’s airports, especially Kennedy, warning tourists about the dangers of New York: don’t go outside after 6 p.m., stay off the subways, don’t go to the South Bronx. It traffics implicitly in various racial stereotypes about violence and crime.

The cover of the book, by contrast, is an image of skyscrapers, looking down on the city from above. One of the questions the book asks is how fear can transform politics, can alter our sense of what’s possible. A lot of what’s associated with New York in the 1970s is fear of crime, fear of violence, especially from those perceived as the lawless poor. But, the book is really about fear being marshaled from above—from atop the skyscrapers—and used to change a city that is far away and remote, one in which most people in the skyscrapers don’t actually live.

At one point in the book I describe the creation of the Municipal Assistance Corporation, which was empowered to issue debt backed by sales taxes to refinance the City’s loans. Its board met for a time on the 28th floor of a skyscraper in Midtown Manhattan. I think that the cover image captured perfectly the idea that the city that would emerge from the fiscal crisis would be geared more to the people on those upper levels of the apartment or office buildings. Their view just didn’t take into account what it was like for people on the ground.


JO: And you make the argument in the book that the budget and the budgeting process is removed from the sphere of politics, from democratic deliberation by citizenry and their elected officials, and it stays that way, on account of this moment of fear. Can you describe the reaction of the municipal unions during the fiscal crisis?


KPF: They go through a profound shift. At the beginning of the year, many unions—and especially District Council 37, which is the largest municipal union—start out skeptical and critical of the plan to cut jobs to address the crisis. They are militant in attacking the banks; they hold a Wall Street rally to encourage members to withdraw funds from Citibank. But that quickly gives way. Many of the unions don’t want to be blamed for the City going into bankruptcy court. And they fear that if the City does go bankrupt, their contracts would be thrown out by a judge.


JO: They might lose collective bargaining.


KPF: These were fairly new unions, which may have made their leaders even more anxious.


JO: Do you think it was a missed opportunity for the labor movement? They wind up saving the City from bankruptcy, in the end, by purchasing municipal bonds, but they don’t seem to be able to get it together to fight for their members or to preserve services.


KPF: Yes, the public sector pension funds become these major creditors to the City in a way they hadn’t been before. In 1977, municipal union leaders and financiers begin to meet regularly to nail down their common priorities for the city—a signal of how much had changed.

JO: They’re probably all meeting at the top of those skyscrapers.


KPF: Exactly.


JO: We’ve talked about several things: the decline of public services; the rise of non-democratic institutions of governance, populated by like-minded business and financial leaders; the draconian response to the 1977 blackout. A lot of people would look at these different factors, and the accompanying rise of inequality, and say: well, these look like  symptoms of the neoliberalization of New York City. But the words neoliberal and neoliberalism don’t appear often in your book. You prefer to use austerity. Where are you with neoliberalism as a concept, now that you’ve written this book?


KPF: This is a narrative history, so its theory is in some ways understated, structuring the story rather than being the main focus. But I do see Fear City as very much part of the discussion and debate about neoliberalism. Probably the book’s biggest contribution is that it suggests how neoliberalism emerged only very slowly as a systematic approach to governance. I did not see a neoliberal playbook—one that existed prior to the crisis, and was simply executed in its aftermath. The initial response is much more haphazard and reactive, based upon a consolidation of power more than on a set of coherent principles. The ideas crystallize later.


JO: Yes.


KPF: My second key point is that neoliberalism is incomplete and partial. There are many conflicting ideas about the proper relationship between government and markets, even among elites. Some people who argue vigorously for austerity in New York are, at the very same time, appealing to the federal government for more aid. And clearly ordinary New Yorkers do not convert suddenly to a neoliberal mentality. What we see in the fiscal crisis is that these ideas don’t gain wide acceptance in a quick, or easy, or automatic way.

I would have liked, in the book, to talk more about the new institutions that emerge after the fiscal crisis, public-private initiatives such as park conservancies and business improvement districts, as well as the various forms of corporate subsidies that gained new legitimacy. In the wake of the crisis, it came to seem as though the primary purpose of a city government must be to stimulate real estate development and rising property prices, in order to generate revenues from property and other real estate taxes. I would have liked to write more about the park conservancies, then, or about the increasing importance of the Parent Teacher Association in public schools in affluent districts. In the middle years of the 20th century, I don’t think you had the PTA raising a million dollars to buy dictionaries, chess sets, and assistant teachers. These are things all schools should be able to have.


JO: And that’s one of the reasons we don’t go back, right? Because that model becomes so embedded in urban statecraft. And you get communities of private individuals who become habituated to having power, authority, and public presence. Even if you told a PTA board, “Never mind, don’t raise the $1 million, we’ll give it to you out of the City coffers,” people wouldn’t want to give up the prestige or the power. And, again, this model is very different from either the liberal moment or what the conservatives sought.


KPF: It’s not just austerity. A new set of policies and institutions are actually created out of the crisis, which shape the city going forwards.


JO: And a new kind of politics.


New York’s Austerity Man

By Kim Phillips-Fein

KPF: After all, eventually the City’s budget grows again. But the question is what the money goes toward, and who controls it. It’s a question of priorities. The same is true on the federal level: even though we starve programs for poor people, we spend a lot on the military. Fear City tells the story of how the ground shifted to open the space for those new institutions. But I look forward to other scholars telling the story of the new way of thinking about urban politics and of the urban neoliberalism that takes shape over the 1980s and 1990s, and beyond.


JO: So, last question: Should we go back? Can we go back? Was the social welfare system of the postwar period only suited to the very different political economy of that era, and a very different social configuration in the city? Or do you think this story contains lessons for the resurgent left of today?


KPF: I don’t think you can exactly just go back. And there were many problems with postwar liberalism that you really wouldn’t want to go back to. New York in the 1940s, 1950s, and 1960s was an incredibly racially segregated city. For all its strengths, the city’s liberalism was implicated in that system.

But at the same time, I have been struck by parts of the program advanced by Rep. Alexandria Ocasio-Cortez and others that seem very reminiscent of mid-century New York. Free college tuition, Medicare for all. Obviously there was not universal health insurance in New York City, but there was an extensive investment in public health and public hospitals, as well as free higher education. In other words, this is not just a vision for the future. Something like it actually existed here, right here in this city in the past.


This article was commissioned by Caitlin Zaloom. icon

Featured image: Kim Phillips-Fein lecturing at New York University’s Wagner School (2017)