CROWDSOURCE: Fiscal Crisis & Economic Restructuring

 This week let’s use the crowdsource to discuss the conditions, key players and significance of the fiscal crisis of 1974.

Some questions we might consider: How did the fiscal crisis come to be, how was it resolved, how did it change the city, who were the important players and what roles did they play, and what is the legacy (or long-lasting impacts) of the fiscal crisis on the city today?

You may refer to either reading assigned this week, though the fiscal crisis specifically is discussed in Joshua Freeman’s piece.

REMINDER: You are not posting to the blog for this assignment.  You will include your thoughts and responses in the comments section of this post.

Comments due by 12noon, Monday 2/13/17.

For more general information on the weekly crowdsource, click here.


  1. The fiscal crisis of the 1970’s sounded more like a clash of political ideology than it was a monetary issue. The major cause was debt, stacked up because of poor administrative decisions and rather, not stacked up because of liberal ideology as the top guns in Washington would’ve liked people to believe. The idea that the debt stemmed from generous welfare – as the article points out- fits into the (usually) conservative idea of poverty as pathology. It doesn’t necessarily talk about poverty, but the idea is along the lines that ‘the economy is suffering because the government gives too much assistance to those who do not deserve it’. The city was not helped that a large percentage of its working population left and took their ability to the suburbs but at the same time it was not helped by the free-reign the brokerage and bond firms were given by the hierarchy (Freeman). Rockefeller, Wriston, Regan and Salomon (all heads of big banks) were at the forefront of the rebuilding process. However these heads were firmly on the track of austerity, something not agreed on upon by the then administration of the City. Washington was on the side of these financial leaders, conservatism was primed and ready to be unleashed on the City (Freeman).

    William Simon was determined to see the removal of liberal policies and ideas from the City and thus rejected the state’s appeal for government assistance. With no forthcoming help, Hugh Carey (the Governor) began to adopt strict austerity measure (Freeman). Welfare was cut, jobs were lost and public services such as hospitals and schools saw their funding diminished; an awful example that strikes on a personal scale was the City University of New York, which was free but now not anymore under these new measures. After these and other measures were not enough, the City rallied once more and sought aid from Washington and it this time it was successful (Freeman). Yet, even this bailout only benefited the heads of the large corporations, ordinary New Yorkers still suffered and this was made worse with the weakening of many of the social democratic policies that citizens were used to. Eventually these came back to the City but as Freeaman points out, the road to recovery was wrought with challenges for the average New Yorker. The policies put in place in the 1970’s were adopted later on by various conservative politicians who wanted to mold Cities in their own image. The legacy that is left is still felt today. Take for instance the economic crisis of 2008, ordinary people suffered and lost their homes whilst the big banks and Wall Streets all received healthy bailouts; however under democratic leadership (President Obama), austerity measures like the past never came into play. Another way the Crisis has left its stain on the city is through the way some people view the idea of Government assisted living; many people believe that the government provides too much and that people are better off working hard to chisel their way out of debt/poverty (which we know from prior readings in class is much easier said than done).

    The Financial Crisis in my eyes was more of a clash between the desire to make New York City more conservative and the desire of the people of the city to stay liberal. Thankfully today we are back to being a liberal city with good social systems (not great as yet) that do enough to keep the people afloat.

    1. I really like your reframing- I have always understood this crisis as an opportunity for a power grab by financially conservative and business elite. We are actually still in this age of austerity, even in NYC..

  2. The Fiscal Crisis began in the mid 1970s. Major financial institutions refused to lend money to New York City. The debt of the city stood at about $11 billion and they were spending 11% of their budget on debt service. I agree with Shevin’s comment of, “The fiscal crisis of the 1970’s sounded more like a clash of political ideology than it was a monetary issue,” because the debt itself wasn’t the issue. It was how the debt was created, and the failed attempts to try to correct it. The labor force number shrank and the unemployment rate spiked up. Major banks and financial institutions lost confidence due to New York’s spending habits, and they started recalling some of the debt back.
    One attempt that was made to correct the deficit, was to layoff a bunch of workers. Abraham Beame made this mistake, and in response the union workers protested and most people received their jobs back. This caused banks to have even less confidence in the city. Many people become hostile towards New York. The federal government refused to aid the city, and many people claimed New York, “seemed to have gone from a place of allure to a symbol of profligacy, moral laxity, and social chaos.” (Freeman 260). Many actions taken then affect us today. Increase in transit prices and taking away free CUNY tuition is something that affects many people whether they are attempting to work or get an education. By doing this, the body of workers and students decreases, and the gap between high wage high skilled workers and low wage low skilled workers increases(as talked about in our last crowdsource discussion). The union fought hard to maintain their rights and to assure that the working class wouldn’t die down. The fiscal crisis left a huge imprint on the city’s future, which we can still notice today.

    1. I like how you’re stringing this to last week’s conversation – continue to try and make this connections.

  3. The Fiscal Crisis of the 1970s was very much a monetary issue created by debt that caused a lot of hostility and worry about the status of the economy and potential bankruptcy in New York City. In response to Shevin’s comment, the clash of political ideas had much to do with the issue and not being able to properly combat it. There were many causes for the increased amount of debt occurring such as the lack of payments by local tax revenues as well as federal and state aid. In addition, many jobs were forced to move out of the cities resulting in an increase of borrowed funds for operating expenses. After New York displayed to banks and lenders that they had what appeared to be uncontrollable spending habits, lenders started demanding higher interest rates. This was very much of an issue as the city was in much debt and not even able to pay back lenders before increased interest rates. The different views of solutions to the problem came from financial leaders, who mainly only cared about their institutions being repaid. Conservative leaders were seeking to restore profitability and ruling class power by aligning themselves with national business leaders.
    Even today, there are still issues that cannot be resolved simply due to different perspectives between conservatives and liberals. However, in regards to Shevin’s comment, I do agree that the economy has done a decent job at keeping people afloat through a more liberal approach of governing.

  4. The fiscal crisis ended with the signing of the Seasonal Financing Act of 1975 through which President Ford ended his opposition against federal aid towards assisting New York City and “agreed to a program of up to $2.3 billion in short-term loans” (270). Throughout majority of the crisis, power-hungry bankers and financiers sought to further their personal agendas as they were the ones looked upon to help resolve the issue initially. In the process of doing so, however, the poor and working-class suffered the most.

    One way in which this was evident was the dependence of the poor and working classes on public services. Together, the development of MAC and the EFCB led to several layoffs and this implied a lower quality of life as people belonging to these classes were unable to support themselves sufficiently. Consequently, with a lack of workers the quality of public services declined. Freeman points out that class sizes in schools became more clustered as more teachers were laid off. Additionally, public transportation costs were increased but this yielded no improvement in quality as “they [subways and buses] came less frequently, suffered more service breakdowns, arrived late more frequently and caused more injuries as a result of faulty equipment” (271). In a nutshell, public services which were once so beneficial were now “second-rate entities” (272).

    Another way in which the poor and working classes suffered was through housing abandonment. Those individuals who were financially stable managed to move out of areas heavily impacted by the fiscal crisis, but those couldn’t do the same were forced to remain in difficult conditions. Due to inflation, landlords demanded more money but the prevalent employment would not allow the working class to meet the demand. Realizing that they were far from profitability with the presence of their current tenants, landlords were forced to abandon their buildings. This led to the deterioration of the buildings’ surroundings and in turned created an unsafe environment. Freeman says, “hundreds of thousands went to bed each night in terror of being awoken by sirens and the possible loss of all they owned, or their very lives” (275).

    The fiscal crisis was essentially a period in which the local government’s actions were exposed publicly and brought into question. The poor and working classes had to struggle to survive and were forced to engage in contentious battles with several governing bodies and voice their opinions while “business and government leaders looked on with near indifference as large sections of the city literally burned down” (283).

  5. In the 1970’s the Fiscal Crisis took event in which the availability of jobs, employment, and population decreased especially with the influence of the recession in 1973 and the mid-1970s. Debt was the root of this crisis as “…banks had urged state and local governments to increase their borrowing” (257) and the large quantities of services/programs and welfare costs that the state provided. William Simon (Secretary of Treasury) and President Gerald Ford refused to help New York during this crisis, in fear of New York’s inability to financially return the investment of federal loan guarantees and the idea that if Washington helps New York, then the state will also end up in debt viewing that “…the city was a haven for ‘welfare cheats’, people with an overabundance of chutzpah…” (260) (written in the New York Times), which is agreeable with Shevin’s comment on the notion of poverty as pathology in relation to the crisis. New York was viewed as a state populated with people who are irrational, lacked involvement in labor markets, and other personality defects.

    Abraham Beame led people to cease their jobs, leaving many unemployed and in a personally, financially stagnated state and lessening the amount of individuals being accepted to CUNY. Even after Washington finally decided to lend federal loans, MAC and city officials continually modified the social and federal benefits that people were entitled to by increasing transit fare, CUNY tuition, stopping renovation and construction for the city’s assets, and government-provided services, and the amount of the city’s educational and emergency workers decreased. Due to the reduction of such public benefits, the lower and working class were mostly effected while those in the upper class were not as suffering from the economic catastrophe.

    Today, the Fiscal Crisis is still reflected as a legacy in our society. In our discussion about economic inequality, businesses in today’s society have increased in association with our government causing the separation between the wealthy and poor individuals. Braking of unions causes wage stagnation and decline as owners of large business markets are gaining more power, employees aren’t earning enough thus they have a larger reliability on public services and welfare. Also, the idea of the shift in tax structure can be an example of how the Fiscal Crisis is a legacy. If taxed at a higher rate, people can make money off of investments in stocks within their businesses or collecting capital gain. So the wealthy aren’t paying a large amount of tax as the middle class is mostly burdened with taxation and are actually providing an advantage to wealthy individuals. Also, although CUNY schools are considered the most affordable schools in the city, many students may still be lacking the amount of financial aid they need especially with the increase in tuition every year.

    1. EXCELLENT point about CUNY – we will discuss this more next week. Also, I am curious about the connection you’re making to the tax structure. can you elaborate more here or when I see you tomorrow?

      1. I just wanted to present tax structure as an example of how economic inequality exists as it’s association with the Fiscal Crisis leaving a legacy. I wanted to focus mainly on the idea that there’s economic inequality.

  6. Chapter 15 of Working Class New York discusses the fiscal crisis in New York City. It officially began in the mid-1970s, but the root of the problem started in the mid-1960s. During this time, the banks began lending for short-term projects, especially to help the city budget. In comparison, previous decades saw borrowing as long-term building of capital (256). This financial instability was exacerbated by the international recession that occurred in 1974. At this point, New York City had accumulated over $11 billion in debt, and 11 percent of spending went to “debt services” (256). As New York tried to borrow money, economic officials sought to change the way New York City was running under a liberal government. This included a less expensive and hands-on government, less financial responsibility on the government’s behalf, and ending socialized services for working class and poor citizens (258). October 1974 saw drastic action—Mayor Beame struck down a hiring freeze on government workers. This attempt to slow down the debt did not work, and Beame began massive lay-offs. This also failed, the city turned to federal officials for help. Both Secretary of Treasury William Simon and President Gerald Ford denied them financial aid. Ford claimed that the city needed to face its problems and decrease its budget, and help from the federal government would only prolong that realization (259).

    At this point, the state government had to provide assistance. Governor Carey called upon four leaders for help, known as the “four pillars of the business establishment”: Simon H. Rifkind (a former federal judge), Felix Rohatyn (an investment banker), Richard Shinn (president of a life insurance company), and William B. Smiley (the chief executive of a major department store) (260). This was intended to fix the financial issue, using people who had dealt with large amounts of capital. It was known as the Municipal Assistance Corporation, or Big MAC. Big MAC only lent money to the city if they felt progress was being made. During this time, Mayor Beame decided to cut spending by reducing CUNY admissions, closing branches of the library and health centers, and getting rid of over 38,000 city employees. All of this was met with protests in an already tumultuous period. Beame, Carey, the four pillars, and Big MAC were the primary people involved in the beginning of the New York City fiscal crisis.

  7. The Fiscal crisis began in the mid 1970s that lead to social, political, and economic issues. New York was in debt and continued to lend money. By 1974 NY was $11 billon in debt and the rate of unemployment raised as well.

    Abraham Beame ordered large scale layoffs and cutbacks to help with the city’s financial issue. He also left many unemployed. Governor Carey’s advisors came out with a plan, MAC would sell 3 billion dollars in bonds instead of having to lend money. Mayor Beame to reduce the city’s spending called on city workers to forgo a 6% pay increase or with reductions in pay in 4 days of the workweek. The union rejected the proposal he then proposed to have a large reduction in CUNY also leading to immediate termination of 38,000 jobs. 

    Roger Starr suggested a plan which was the city to follow private capital and to walk away from troubled neighborhoods. To also reduce police and fire service and shuttering schools, hospitals, and subway stations. Starr said “lie fallow until a change in economic and demographic assumptions makes the land useful once again.” He argued that the declining on NYC population that they should focus their resources on selected neighborhoods. He also said “Our urban system…is based on the theory of taking the peasant and turning him into an industrial worker. Now there are no industrial jobs. Why not keep him a peasant?” Although many city officials disagreed and rejected the idea they did decide to implement a “lite” version of what he suggested. Many supported this idea and wanted to rely on white collar employees on the cities survival.
    Today I believe that although the fiscal crisis occurred years ago it is still etched into today’s society. Mentioning Lauren’s comment, there is is this separation between rich and poor. During the crisis many were out of jobs and there were ongoing strikes and protests. The city had issues and the ones who were hit hard were the working class. I also agree that people could make money off investments if they are taxed at a higher rate.

  8. The article “The Fiscal Crisis” by Josh Freeman presents the idea of “Fiscal Crisis”, which is the dangerous financial situation in the New York City around mid-1970s and different groups of people getting together and try to solve those problems. One of the problems presenting in the chapter is that the New York’s municipal debt is both growing up raptly for the long terms bonds for financing capital constructions and short term, which is helping with filling some holes in the budgets in a short period of time. Unfortunately, money is always the issues that the example from the chapter presenting “ The cost of expanding services demanded by a mobilized working class and expenses associated with an aging population and a growing number of poor push up the cost of municipal government.”(Freeman,256) It means that the government spending on creating jobs have to measure base on not only the current population in the city but also the spending on those people who are requiring more government transfer payment or someone is not in the labor force. The result leads to the city has the debt of $11 billion and 11 percent of them are going to the service based on the chapter. By solving the fiscal crisis problem in the city, the group called MAC is trying to encouraging more and more investors for investing. Also, they are trying to both lower the wage of workers and lower the transfer payment in the city in order to fit in the hole. On my opinion, that is not a good idea for fixing the economic issues and another example in the chapter shows the resolution of something always has the good and bad side. The idea is that waived the fee for City College in New York City that gives people chances to have higher education, but this decent idea leads to the decreasing the systems of CUNY including fewer professors and oversize classes. After reading the chapter, I feel like the fiscal crisis or economic dangerous is always around us and will not be solved 100%, which takes time to correct it little by little or improving the details of the police and I agree with Shevin Narine uses the conservative to describes the situation in the mid 1970s when people care about policies more than people ‘s life qualities. I hope that the system we have today will help both the economic and our life standard become better.

  9. In chapter 15 of fiscal crisis, this chapter is about the New York City fiscal. in the mid-1970s New York City fiscal crisis is terrible. “by mid-1974 the city had a debt of $ 11 billion, including $3.4 billion in short-term notes. over 11 percent of city spending went to debt service (256).” and unemployment rate increasing like “the city’s unemployment rate jumped from under 5 percent in 1970 and 8.5 percent at the end of 1974 and 12 percent in mid-1975 (256).” unemployment rate increasing it make a lots people can not repayment of loans and debt. it leads to they have to sell the house. therefore, New York city had a lots debt.

    there were many people tried to solve the problem. such as Abraham Beame through layoffs to reduce fiscal crisis, and the president of “ford agreed to a program of up to $2.3 billion in short-term loans (270).” The EFCB through control of the city’s budget. It cuts municipal spending and froze salaries, increasing unemployment rate and raised fares of bus and subway, welfare spending was cut. The labor unions use the funds to the buy new york city bonds. however, these methods are not good for the lower class, and middle class.

    today, the fiscal crisis still impacts now because no matter what the situation, the poor people always victimized.

  10. In the history of our economy we have seen many fiscal crisis, in this week’s crowd source reading “The Fiscal Crisis” by Josh Freeman, we focus on the fiscal crisis in New York during the 1970s. It had began when financial institutions began to go against giving loans to the city, however before for years before this the city had a growing municipal debt; borrowing money for construction at first, but later on to fix the city budget, in the end causing a much bigger issue. By 1974 the city was eleven-billion dollars in debt, and a weakened global economy put more pressure on the city’s economic stability.

    In 1975 the city’s top financial leaders; David Rockefeller, Ellemore Paterson, William T. Spencer,John F. McGIllicuddy, Donald T. Reagan, and William Salomon had created a Financial Community Liaison group in order to create more importance on the creation of reforms that would “reassure inventors”(257) which to me sounds like reforms that would only benefit them and their social/ economic group. Reforms created by the government had started protest and a wave of discomfort in the citizens, Abraham Beame and MAC’s “austerity budget” began many protests, the MLC argued that “orchestrated pressure on the city government to cut services and fire workers”(261) while the budget cuts being made benefited the city’s debt it failed to recognize its citizens and their economic standing.

    At the time of the crisis, the working class had to struggle and fight for their rights, while the rich had power over the government. From this crisis future generations were able to learn and shape ideas of how to handle future economic crises, for instance Shevin’s example of Obama’s resistance to austerity cuts in 2008. Although it was a time of great hardship the fiscal crisis of the 1970s allows us to learn about many aspects of our financial and economic culture.

  11. All began in the mid-1970’s, almost the entire economy was in bankruptcy, some banks were closed, people all over the place looking for their money etc. One of the main reasons was because of more and more people borrowing money without any control, more debts and Long terms bonds were being accumulated by all these people. The cost of all municipal worker was expanded and debt was growing insanely crazy for New York City. The expenses that were associated with all the working class and “a growing number of poor pushed up the cost of municipal government”. These problems led the city to have an 11 billion debt by mid-1974.

    In the middle of all this chaos “Abraham Beame who had succeeded Lindsay as mayor, ordered a freeze on most city hiring and merit pay increases.” His idea was to take some pressure from these banks and basically start again or get a little bit better. Even though he wanted to help the city by ordering large-scale layoffs and cutbacks but at the same time, he left many people unemployed. Sadly, these also failed and the city asked for federal help but they also denied the petition. President Ford at the time argued that the help that was being asked from the federal would only extend the Fiscal Crisis, so he aims that the city needed to decrease its budget. The State government decided to help four of the top business columns Simon H. Rifkind (a former federal judge), Felix Rohatyn (an investment banker), Richard Shinn (president of a life insurance company), and William B. Smiley (the chief executive of a major department store) (260). This was called the Municipal Assistance Corporation or Big MAC. I think that the right move was to tax the wealthy with a high tax rate, so by doing that they could help those who at the time didn’t have anything. At the same time, Mayor Beame decided to cut spending by cutting CUNY admissions, so he was basically giving less opportunity for those poor young people who had the courage and desire to keep with their education no mattering what was going on with the economy. Sometimes we must think in the future and what those who are at the bottom can do if we together help them succeed.

  12. It started in 1970 there was a budget crisis, job opportunities were less and less, the population decline as well. The labor force was shrinking and the unemployment went from 5% to 8.5% in four from 1970 to 1974.All of this due to banks pushing the government to increase their borrowing meaning more debt and financial bond accumulating. Financial leaders saw all these issues as an opportunity to undo the past to create New York the way they wanted by breaking services and protections for the working class and the poor, by making unions less interested in helping their workers with benefits and services.

    With time things started to get out of control. People started to get fired from their jobs which lead to many protesting in the streets. There were 200 people protesting in front of the fire department headquarters because of the closing of an engine company. Around 4000 doctors, nurses, and other hospital workers took the Brooklyn Bridge to protest since they cut hospital budget. All of these yet cause almost nothing like the sanitation strike that had a short term solution. People who got fired were rehired using union funds but two weeks later they were laid off again. Leaving New York from a “place of allure to a symbol of profligacy, moral laxity, and social chaos.”

    Also, the decline of population and fiscal crisis affected the neighborhoods of the working class. There were more reports of thieves and burglaries in places like Elmhurst, Queens. In addition to sanitation not doing their duties, the streets became filthy.
    There were around 200,000 houses that were abandon due to their landlords deciding that it was better to leave rather than pay mortgages, taxes, and other expenses.

    The Fiscal Crisis left an unbalance that is still seen today. Perhaps it is not as bad as it was in those times or at least not that obvious but we still can see how the working and poor class are taken advantage.

  13. The 1970’s were an economically and socially dark time for Americans, particularly in cities or areas with a large working class. The fiscal crisis that occurred was in part due by the horrible business and administrative decisions by banks and the state and local governments. In NYC, government and personal debt began to accrue without any means of controlling it, causing massive layoffs to save money which led to high unemployment and ultimately led to a rising poor working class that could not pay their debts.

    This is a result of bad ideology by the wealthy people in charge who are also tied to the government and its legislative body to create laws that benefit rich people without thinking about the consequence of what would happen to the poor and working class. Massive layoffs resulted in massive protests and strikes. Mayor Beame, by cutting CUNY funds and ultimately their admissions, perpetuated this ongoing issue of poor and working class people not having the same opportunities as everyone else and allowing the working class and poverty to increase as they were unable to get jobs because of no education and not allowing them to receive education to inform themselves of greater issues, becoming unable to fix the issues at hand because they had almost no power. With rising poverty came rising homelessness or house abandonment.

    All of these budget cuts and layoffs helped the government but it ignored the people who were really suffering as a result of the mishandling of finances; it’s kind of like putting a bandaid on a cut without cleaning it first.

  14. A combination of factors led to the fiscal crisis in New York. Debt grew as capital projects required more finance, workers unions demanded better benefits and social welfare for the aging and homeless increased in quantity. Suburbanization and relocation exasperated the problem by slowing down tax revenues gained by the city. Ultimately the budget needed supplementation from private financial institutions in 1975 stopped lending to the city. By this time “over 11 percent of city spending went to debt service.” (Freeman, 1). Due to the global recession in 1973 unemployment was steadily on the rise which caused an increased demand for social services. Instead of cutting back the city decided to increase its workforce to meet the demand which worsened the debt.

    During the financial crisis the reality of bankruptcy loomed over the city. This raised many questions on what effect this would have on the “employees, bondholders, and residents” (Freeman, 3) of the city. To avert the crisis a meeting was called between Mayor Beame, Governor Hugh Carey and numerous bankers traveled to Washington to request a short-term federal loan that would bail the city out of it’s immediate danger. After being rejected by both the Secretary of Treasury William Simon and President Ford the New Yorkers returned to find that the city largely defended them from the Federal Government. Newspapers like the New York Times wrote about how ideological and ignorant opinions prevented Washington from helping NY more than common sense (Freeman, 3). Infamously written of President Ford was the headline “Ford to City: Drop Dead” by the Daily News. This cemented the division between the federal government and the city.

    Without federal assistance the state stepped in to ease the crisis. Austerity measures such as rolling back on promises made to unions, cutting government jobs and increasing the price of transportation were put into place first. These were all met with great amounts of protest that ultimately led nowhere as the measures moved forward. Those who rejected the changes faced wage freezes which was far worse than surrendering their hard won benefits. On the more extreme ends CUNY was required to end the free tuition tradition that had stood for 129 years. Ultimately despite these extreme and long lasting measures the city remained in crisis.

    Finally the austerity measures for the private sector in conjunction with new labor-management committees for the public sector. Workers were and are still on the defensive on any spending measures which forced them to justify even the most obvious actions. Still this was a step towards more responsible governance and led to a noticeable decline in unnecessary spending. Also after unrelenting political pressure Ford approved a short-term federal loan that eased much of the tension off the city. Despite returning economic stability the city was the changed forever. A long history of democratic control of the state was overturned and the era of public sector benefits being better than private sector was over.

Comments are closed.

Spam prevention powered by Akismet