Capital City: New York in Fiscal Crisis, 1966-1978 Michael Reagan A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy University of Washington 2017 Reading Committee: James Gregory Margaret O’Mara Moon Ho Jung Sarah Quinn Program Authorized to Offer Degree: History © Copyright 2017 Michael Reagan University of Washington Abstract Capital City: New York in Fiscal Crisis, 1966-1978 Michael Reagan Co-Chairs of Supervisory Committee: James Gregory Margaret O’Mara Department of History This dissertation is a history of the 1975 New York City fiscal crisis. It explores the cultural and material causes and consequences of the city’s near bankruptcy and subsequent social and fiscal restructuring. It argues that the cause of the crisis was a combination of a severe economic depression in the city’s real economy, and a market failure, the worst in the nation’s history, in the municipal bond market. The combination of these factors meant that the city was forced into deficit spending, and simultaneously frozen out of the credit markets. With the federal government taking no action, the city was forced to make severe, historic, cuts on its social programs, a move to austerity that has come to define our own era. This shift requires more than a fiscal explanation, as previous crises, when deficits were twice as large as those of the 1970s, were successfully navigated without the resort to the kinds of austerity seen in 1975. Instead, we have to look to a cultural turn on the part of the city’s elites. Where in the 1960s, bankers, state planners, and academics were willing to manage deficits as part of a larger social contract that included a commitment to the city’s poor, by 1975 that commitment was largely undone. The rejection was a reaction to the victories of the social movements of 1960s, specifically those for civil rights and black liberation. City elites sought mechanisms to check the costs, and more, the power and the politics, of the movements. This was achieved through fiscal measures, which profoundly reshaped social life in New York. The result for working people, women, and people of color was a pervasive sense of hopelessness and despair, evident even decades later, the artistic work of figures like Notorious B.I.G. His 1994 album of lost opportunity and personal “everyday struggle” spoke for the generation born to austerity; Big and his generation were “Ready To Die.” For Angela and Arthur And Abraham drew near, and said, Wilt thou also destroy the righteous with the wicked? - Genesis 18:23 Enduring interest groups require a sense of “responsibility” – that is, class consciousness. James O’Connor, Fiscal Crisis of the State Contents Introduction ................................................................................................................................................ 11 Chapter 1: Culture ....................................................................................................................................... 41 1.1 Introduction ...................................................................................................................................... 41 1.2. The 1966 Fiscal Crisis and Keynesian Consensus ............................................................................. 46 1.2.1 When Banks Were Keynesian .................................................................................................... 62 1.3 Bankers Counterrevolution, a Changing Consciousness ................................................................... 69 1.4 Culture of Poverty ............................................................................................................................. 84 1.5 Inflation and Anxiety: New Economic Thinking .............................................................................. 102 1.6 Synthesis ‘75 ................................................................................................................................... 119 1.7 Conclusion ....................................................................................................................................... 124 Chapter 2: Economy .................................................................................................................................. 126 2.1 Introduction .................................................................................................................................... 126 2.2 The Post-War Economy ................................................................................................................... 129 2.3 Death of an “Industrial Agglomeration”: The Changing New York Economy ................................. 133 2.4 “A Revolution in Banking” New York’s Go-Go Years: The Financial Sector .................................... 157 2.5 “Two for the seesaw”: Inflation and Recession .............................................................................. 176 2.5.1 Piercing the Threshold ............................................................................................................. 181 2.6 Market Failure ................................................................................................................................. 189 2.7 Conclusion ....................................................................................................................................... 216 Chapter 3: Finance .................................................................................................................................... 219 3.1 Introduction: State and Market ...................................................................................................... 219 3.2 “The Budget is Everything:” New York City Budgets from 1966 to November 1974 ..................... 221 3.3 “Wolf Through the Doors:” New York City’s Market Descent ........................................................ 251 3.5 Rose of another Name: Failure of the Big MAC .............................................................................. 281 3.5 “Nibbling the bullet:” Standard Austerity ....................................................................................... 304 3.6 Conclusion ....................................................................................................................................... 320 Chapter 4: Austerity .................................................................................................................................. 325 4.1 Introduction: “The Falsest Kind of Economy” ................................................................................. 325 4.2 “Jaws” Big MAC with Teeth: The EFCB ............................................................................................ 328 4.3 Unions: “$700 Million in Human Tragedy” ..................................................................................... 358 4.4 “The CUNY Problem” ...................................................................................................................... 381 4.5 “War in our hospitals”..................................................................................................................... 394 4.6 “Double Barreled:” Remaking New York’s Racial Capitalism .......................................................... 415 4.7 Conclusion ....................................................................................................................................... 441 Chapter 5 – Politics ................................................................................................................................... 444 5.1 Introduction .................................................................................................................................... 444 5.2 Politicians ........................................................................................................................................ 445 5.3 Labor ............................................................................................................................................... 481 5.4 Social Movements ........................................................................................................................... 515 5.5 Popular Culture ............................................................................................................................... 525 5.6 Conclusion ....................................................................................................................................... 542 Conclusion ................................................................................................................................................. 543 Bibliography .............................................................................................................................................. 551 Acknowledgments Writing a dissertation is a lonely yet crowded affair; this project could not have been completed without the love and support of dozens of people, too many to all mention here. First to my committee, Jim Gregory, Margaret O’Mara, Moon Ho Jung and Sarah Quinn, whom I considered a dream team for scaffolding and support. To Jim, who has been with this project from the beginning, for introducing me and pushing me to think about institutions, and for giving me enough of a tether to explore the parameters of this project on my own. Those who’ve had the pleasure to work with Margaret know what a delightful experience it can be.