The Streets Were Paved with Gold (7 page)

Wealthy Europeans view their tax laws as confiscatory and the labor unions as too powerful. The British Empire is preserved in history books. France, where the rich can often avoid paying their share of taxes, is beset by political instability. The Left captured 49 percent of the vote in the 1978 elections, and many business leaders fear the deep divisions between classes—not to mention the divisions within the ruling Gaullist party.

How Italy survives is one of the world’s wonders, though Orson Welles had as good an explanation as any. Italy, he said, is the home of 50 million actors, and the only bad ones were on the stage or in films. My forebears deceived Mussolini into believing they were grateful to be ruled by him, then, bless their souls, they hung him upside down. Today, the Red Brigades shoot people in the knees and kidnap and kill former prime ministers. The Italian inflation rate reads like a football score. As it does in Israel, where
inflation hovered at 40 percent for two years. In Sweden, once hailed for its economic miracle, and its “middle way” between capitalism and socialism, the GNP declined 2.4 percent in 1977 and consumer spending dropped for the first time since 1931. Canada was lashed by 9 percent inflation and 8.3 percent unemployment in early 1978, and a major province—Quebec, which is larger than France—threatened to secede. Most Western European nations are sagging under the weight of decreased industrial investment, unemployment of 4 to 7 percent, soaring inflation, and a looming shortage of credit. Other nations, like Argentina, experienced an inflation rate of 160 percent in 1977.

With the exception of Germany and Japan, the non-oil-producing nations were punished by balance-of-payment trade deficits. The International Monetary Fund projected that this imbalance would grow throughout the eighties. As deficits, devaluation, unemployment and inflation continue, the fever of protectionism spreads, making cooperative solutions less likely. To keep afloat, many smaller nations—and their bankers—follow New York City’s example and borrow or lend excessively. The debt of underdeveloped nations is variously estimated to be between $150 and $250 billion. Much of that mushrooming obligation—as New York’s was prior to the 1975 market collapse—is short-term debt. The Fourth World, like many older American cities, cannot compete and has nowhere to turn. Bangladesh does not have the luxury of worrying about inflation. Each year, 70 million people, according to the World Bank, face starvation; one-quarter of the earth’s population—1.1 billion human beings—live in countries where annual incomes are less than the $265 weekly earnings of a U.S. auto worker.

An international economy, like a city bond market, is largely predicated on confidence. By 1978, many worried about the “global crisis syndrome,” as the Club of Rome dubbed it, about the American dollar, about trade deficits, loan defaults, war in the Middle East or Zaire, the arms race, post-Tito Yugoslavia, inflation, unemployment—about the collapse of confidence in the world economy. Perhaps this explains why Paul Erdman’s novel
The Crash of ’79
led bestseller lists in 1977 and was read by many as a work of nonfiction.

A
BLEAK PICTURE
? Perhaps too bleak. As I write this, no American soldiers are being killed or maimed in foreign adventures; fewer
Americans are starving; there is at least more talk about human rights and even evidence of success; England is beginning to tap its North Sea oil riches; Anwar Sadat’s peace initiative and Jimmy Carter’s spirit of Camp David have inspired people around the world. New York has a new mayor with high expectations; you can actually see citizens bending to shovel the dog shit with their pooper-scoopers, the result of a new law that is being obeyed. And, there is always E. B. White:

It is a miracle that New York works at all. The whole thing is implausible. Every time the residents brush their teeth, millions of gallons of water must be drawn from the Catskills and the hills of Westchester.… The subterranean system of telephone cables, power lines, steam pipes, gas mains, and sewer pipes is reason enough to abandon the island to the gods and the weevils.… By rights New York should have destroyed itself long ago, from panic or fire or rioting or failure of some vital supply line in its circulatory system.… It should have been wiped out by a plague starting in its slums or carried in by ships’ rats. It should have been overwhelmed by the sea that licks at it on every side. The workers in its myriad cells should have succumbed to nerves, from the fearful pall of smoke-fog that drifts over every few days from Jersey, blotting out all light at noon and leaving the high offices suspended, men groping and depressed, and the sense of world’s end. It should have been touched in the head by the August heat and gone off its rocker.… Mass hysteria is a terrible force, yet New Yorkers seem always to escape it by some tiny margin: they sit in stalled subways without claustrophobia, they extricate themselves from panic situations by some lucky wisecrack, they meet confusion and congestion with patience and grit—a sort of perpetual muddling through.

Despite this book’s catalog of depressing facts and its view—expressed jointly by urbanologists George Sternlieb and James W. Hughes, that New York City’s “immediate past … may be the future”—this pessimist is optimistic enough to live here. In some ways, what I think doesn’t square with what I feel.

I love New York. Not just the reality of its museums and neighborhoods and theater and restaurants and architecture, but the idea of New York. The idea of diversity, of the bubbling melting pot, of the special compassion generated by America’s Statue of Liberty city, of competition among the best in every occupation. Plays try out on the road before meeting their big test in New York. New York, like Paris, determines next year’s fashion. For a journalist,
this is the big leagues. Sure, Washington has great journalists, but it’s also a small town with one industry (government). In New York, you could spend whole days at newsstands surveying the myriad publications that make their home here. New York is the intellectual battery of America. Yes, greater tranquillity can be found in Plains, Georgia; more of a sense of community, in Peoria, Illinois; more comfort and golf, in suburban Summit, New Jersey, or Houston, Texas. But Sinclair Lewis told us all we need to know about those places.

It’s hard not to be arrogant about New York. But it’s also hard to ignore that my city’s crisis is, in many respects, a metaphor for what is happening socially and economically to America and the world. As we shall see, a generation of city officials sealed their eyes to economic currents; tried to ignore the limits imposed by a budget or bond market; tried to tax too much, seemingly unaware that business did not have to do business in New York. As elsewhere, New York did not—does not—know how to cope with decline. It could not harmonize what it wished to do socially or politically with what it could afford. Good politics and good economics were at war in New York. Even today, when New York knows what has to be done, there is scant evidence that our democratic political system can stretch to do the job.

New York has trouble coping with its fiscal crisis; America, with its economic and energy crises; the world’s nations, with the spread of armaments, inflation and hunger. But Cassandras are no fun. Most of us, like Prince Prospero, prefer retreating to the comfort of our own castles.

S
EPTEMBER
21, 1938, was a special day for one resident of Long Island. A war was about to explode in Europe, but on this morning he was more concerned with a long-awaited package that arrived in the mail. Excitedly, he unwrapped his shiny new barometer, noticing that the needle pointed below 29, where the dial warned of “Hurricanes and Tornadoes.” Ridiculous. It was a sunny day. As recounted by William Manchester in
The Glory and the Dream
: “He shook it and banged it against a wall; the needle wouldn’t budge. Indignant, he repacked it, drove to the post office, and mailed it back. While he was gone, his house blew away.”

Something like that happened to New York thirty-seven years later. For years, few believed the menacing storm clouds. Since 1898, New York had become America’s largest and most important metropolis. Then, in the 1960’s, New York stopped growing. Each year, the budget would come up short; each year, officials would devise a temporary solution by taxing a little here, borrowing a little there, fudging everywhere they could. Then, during the year and outside the normal budget review process, they would add a program here or there, and fudge some more. By 1975, city expenditures totaled $12.8 billion, while revenues totaled only $10.9 billion. New York was borrowing to close an annual operating deficit of almost $2 billion. While city and state officials tinkered and wrestled with symptoms, New York was being blown away.

Prophets of fiscal and economic doom were scorned. “New York City is in dire financial condition as a result of mismanagement, extravagance, and political cowardice,” cautioned William F. Buckley, Jr., the Conservative party’s candidate for mayor in 1965. “New York City must discontinue its present borrowing policies, and learn to live within its income, before it goes bankrupt.” Judging the reaction, one would have thought Buckley favored a nuclear war. He was summarily condemned as a “nazi” and a “right-wing kook,” as was that other perennial candidate, Vito Battista—who could more easily be called a kook. Similar admonitions were issued by State Senator John Marchi, the Republican/Conservative candidate for mayor in 1969. Marchi was labeled an “extremist” for preaching fiscal responsibility. “They were shooting the messenger,” Marchi recalls. His opponents, Liberal/Independent John Lindsay and Democrat Mario Procaccino, pounced on Marchi when he warned that the transit fare would climb to 25¢; they would not allow that to happen. Just weeks after Lindsay was reelected, the fare climbed to 30¢. There were few voices in opposition. Pithy
Daily News
editorials regularly clanged the alarm, the business-oriented Citizens Budget Commission sometimes issued critiques of city budget gimmicks, but with few allies they were easily dismissed as cranks. When he foreboded that the city was living beyond its means, Democratic gubernatorial contender Howard Samuels was assailed for being “anti–New York.”

Such was the temper of the times. Critics were bucking the sixties—the Age of Good Intentions, limitless optimism, when candidates vied to outspend their rivals and promised new ideas, new programs, new solutions. Budgets were not viewed as inflexible boundaries restricting what could be spent. Robert F. Wagner, for twelve years New York’s bland mayor, captured the go-go spirit of the times in his final 1965 budget message: “I do not propose to permit our fiscal problems to set the limits of our commitments to meet the essential needs of the people of the city.”

Armed with that novel government philosophy, the Statue of Liberty City, home for generations of poor immigrants, commenced an ambitious, politically popular and compassionate effort to care for the less fortunate by taxing the more fortunate. New York undertook its own partial experiment in local socialism and income redistribution, with one clear result being the redistribution of much of its tax base and jobs to other parts of the country as middle-class taxpayers and businessmen fled town.

The city’s budget, $2.7 billion in 1961, leaped to $13.6 billion in fiscal 1976. The budget expanded at an annual rate of 8.6 percent from 1961 to 1966, when Wagner was mayor; almost doubled to 15.9 percent annually over John Lindsay’s first five years, 1966 to 1971; increased at an average annual rate of 10.2 percent between 1971 and 1975, when the city’s economic base was rapidly declining. Of equal significance is how the budget grew. “Between fiscal years 1961 and 1976,” concluded the Eighth Interim Report of the Mayor’s Temporary Commission on City Finances, “the share of total City expenditures allocated to police, fire, sanitation, and education declined from 46 percent to 30 percent, while the welfare, hospitals and higher education share increased from 22 percent to 37 percent.”

From an emphasis on basic services—which are most visible to middle- and upper-income residents—the city’s budget shifted to providing more public employee benefits and more services for the poor. “Fifteen years ago,” the 1977 report noted, “almost half of every dollar spent for operating the City was allocated to police, fire, sanitation, and education. At present, less than one-third of every dollar goes for these functions.” By 1975, the Regional Plan Association said, New York was spending an average of $249 per person in aid to the poor vs. an average of $59 for all other local governments in the state.

As their share of the budget pie diminished, middle-income residents found New York less attractive. And more expensive. By 1975, New York City had as many different taxes (twenty-two) as Howard Johnson’s had ice cream flavors. There were personal income and commuter taxes, sales taxes, vault taxes, auto use taxes, stock transfer taxes, cigarette taxes. New York developed another distinction: its middle- and upper-income residents came to shoulder the steepest tax burden in the U.S. Using 1974 data, the Eleventh Interim Report of the Mayor’s Temporary Commission disclosed that a city family of four earning $25,000 paid 6.6 percent of its income in local and state taxes—almost three times the national average. (Chicago residents, for instance, paid only 2.1 percent.) And the higher the family’s income, the greater the disparity. At the $50,000 level, a city family of four paid 11.1 percent of their income for local and state taxes (double Los Angeles’ 5.6 percent and triple the U.S. average of 3.7 percent; a family earning $20,000 in Houston would need $27,071 to have the same disposable income in New York City).

Borrowing also grew. With the cooperation of its banks and financial institutions, the city devised a novel method to print its own money. Because New York was a financial center, and because its banks were underwriting more than they were purchasing city securities for their own accounts, the financial community was performing more a sales than a credit analysis function. They were salesmen, pulling down handsome commissions. So sell they did. Between 1961 and 1975, city debt almost tripled—from $4.3 to $12.3 billion. The city’s annual debt service payments jumped from $402 million in 1961 to $2.3 billion in 1976. Excessive borrowing led, inexorably, to excessive budget tricks. What didn’t come from Washington, Albany or taxes came from borrowing. An internal memorandum written to Comptroller Goldin in 1975 was appropriately titled “City Debt: The Price of Deception.” Sketching past city gimmicks, Goldin’s staff concluded that more than 20 percent of all short-term debt ($1.5 billion) was attributed to “gimmicks,” as was about 10 percent ($700 million) of all long-term debts. That year alone, the memo said, taxpayers would pay an extra $210 million in interest because of those gimmicks—more than the cumulative total spent annually to maintain city parks, repair streets, run a consumer protection agency, provide public health services, enforce housing codes, administer rent control and provide for the relocation of tenants. By 1976, 56 percent of locally raised tax funds ($3.7 billion) was earmarked not for the delivery of services but for debt service, pension payments and Social Security—consuming 31 percent of the total budget.