Kim Phillips-Fein: The people from whom cities receive their revenue can come to exercise a disproportionate amount of power. That’s one of the menaces of prosperity that you point to—certain forms of growth not only have economic costs, but political ones too.
The opening of your book discusses the fiscal crisis of the seventies. The city was on the edge of bankruptcy, and there were protests and fear about what the future would hold. But then you reveal that this was not in fact the 1970s, but the 1870s, when New York also had a fiscal crisis. What was the cause of this budget crisis, and was it similar to the fiscal crisis a hundred years later? Why do fiscal crises so often plague cities?
Daniel Wortel-London: I structured the book around fiscal crises so as to give a sense of New Yorkers’ “fiscal imagination”—the way groups understand the costs and benefits of different development strategies. In the 1870s, one out of five American cities went bankrupt. This was partly a national issue: the market in railroad and municipal securities had collapsed. But at the city level, many local development decisions went awry. New York depended on property revenue, and it had tried to raise property tax revenue through the early nineteenth century by raising property values. The city sold public land, spent money on street improvements, and went into debt to finance grand infrastructure projects.
After the stock market collapse, banks asked for their money back and New York couldn’t pay up. This led to a large revolt against debt-financed improvements during the 1870s, both from “good government” folks (who felt that a lot of that earlier spending had been corrupt) and worker activists in groups like the Knights of Labor, who felt that cities were subsidizing speculative industries at the expense of workers.
This dynamic occurred again in the 1930s, when both the city and financial interests went into debt promoting real estate. Banks invested in real-estate speculation, and when the real-estate market collapsed the speculators couldn’t pay back their loans. The result was that the banks called in their loans and the cities cried default, setting in motion a new crisis. So again, New York’s fiscal crisis of the thirties was in part the result of these flawed development strategies. The 1970s are somewhat similar. In the years following the Second World War, New York changed policy tack, promoting white-collar industries and corporate headquarters at the expense of working-class manufacturing jobs, a strategy that arguably deepened the city’s fiscal crisis, making it more difficult to survive the broader economic downturn of the 1970s.