Booked: From Welfare City to Fear City, with Kim Phillips-Fein

Booked: From Welfare City to Fear City, with Kim Phillips-Fein

Kim Phillips-Fein discusses her new book, Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, and who killed the social-democratic city.

Booked is a monthly series of Q&As with authors by contributing editor Timothy Shenk. For this edition, Tim spoke with Kim Phillips-Fein about her new book, Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics (Metropolitan, 2017). Use the player to listen to a recording of their conversation, or read an edited version below.

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Timothy Shenk: Let’s start with the title. Who called New York “Fear City”—other than you in this book?

Kim Phillips-Fein: The title of this book is drawn from a pamphlet, produced by a coalition of police unions early in the summer of 1975. On the cover, in all caps, it reads “Welcome to Fear City” above a picture of a grinning skull. On the inside of the pamphlet it goes on about how dangerous New York is—a warning to tourists who might be coming here—how you shouldn’t go outside after 6 p.m., how you should stay off the subways at all costs, how you most certainly should go nowhere near the South Bronx. It paints New York as a horrifying, violent metropolis.

They were distributed by police officers at the city’s airports, after the mayor, Abraham Beame, announced the layoffs of several thousand police officers.

The book’s title, Fear City, is taken from this pamphlet that trafficked in racist stereotypes, but sets those words above this wonderful image of the city viewed from on high, of skyscrapers shrouded in mist.

The book is really about fear, but a fear that comes from the upper levels of the city—its skyscrapers, its elites—and how that fear was mobilized to transform New York.

Shenk: This pamphlet really captures the sense of the city in crisis. But to grasp why it felt like New York was coming apart we have to understand what came before. You make it clear that in the 1970s the city shifted decisively from one model of governance to another. What were New Yorkers leaving behind?

Phillips-Fein: New York in the postwar moment is a city very different in some important ways from the city that we know today. Its employment base was predominantly blue-collar, and industrial in particular. It also had an unusually large and generous public sector, funded partly by the large amount of federal money that began coming into the city during the 1930s. The public sector also grew out of the city’s long labor and left-wing political traditions, which exerted pressure on the city government to create this remarkable set of resources. The city had a very extensive public health program: it had a network throughout the five boroughs of more than twenty municipal hospitals, as well as public clinics, primary care clinics, a public health department that conducted its own independent research. It had famously free higher education.

Shenk: Free tuition at CUNY seems to be the most powerful symbol of this period.

Phillips-Fein: It was a very powerful symbol. CUNY had been free since its inception, but it was growing during the fifties and sixties. Its campuses were expanding. It was moving from the flagship schools of City College, to Brooklyn College, and then Hunter, but also many of the other community colleges and new four-year campuses were opening. It was an expansive promise at this point. It becomes a graduate school.

There are also 720 miles of subway tracks running throughout the city. There is a very strong political commitment to keeping public transit low cost. Then, during the sixties, there is a further expansion of the local welfare state during the Great Society/War on Poverty years, as new federal money flows into New York. The city expands daycares for low-income families, begins to operate different drug-treatment programs and facilities.

Shenk: And this expansion continued under Republican mayor John Lindsay. Was he also part of this social-democratic moment?

Phillips-Fein: Lindsay was a very peculiar Republican and late in his mayoralty he actually becomes a Democrat. And the vision runs through the city. It is imperfect and incomplete—I would never say that New York in the 1930s through the 1960s was some kind of utopia. Craig Wilder’s Covenant with Color is about the differences in the ways that African American neighborhoods experienced the public works spending of the LaGuardia years and afterwards. It is not as though divisions of race or class are transcended in postwar New York. But I think there is this policy that at least provides some counter, however partial and incomplete it may be.

Shenk: However limited, it does seem like the city was making progress. When did the wheels come off the bus?

Phillips-Fein: Well, the city runs into many problems in the 1960s and early 1970s, in part due to the kinds of economic shifts that are affecting cities across the Northeast and Midwest: deindustrialization and the flight of white, middle-class people to the suburbs and the subsequent erosion of the tax base. There are conflicting visions within the city as well about what to do as the industrial base begins to depart. In some cases that is actively exacerbated by parts of the city’s elite that promote rezoning neighborhoods to be more oriented towards residential and office construction, rather than trying to protect the industrial base.

The city is becoming poorer, it’s becoming less white, and it runs into difficulty generating the revenue that it needs to cover the programs that it has been operating.

Political questions emerge in the sixties, too, around to whom the city government is really responsive. There’s a deepening fear among parts of the city’s elite that their voices aren’t being heard or responded to. This comes up especially in the mid-1960s, early in the Lindsay years. He goes to Albany—he wants to create a stock transfer tax, taking a little bit of money each time a stock trades hands. People at the New York Stock Exchange are enraged by this and threaten to move the whole stock exchange to Stamford, Connecticut or Woodbridge—

Shenk: A Republican mayor is proposing a new tax on Wall Street. . .

Phillips-Fein: And it actually wins, it passes! But people at the stock exchange are very troubled by this. They say, “There’s no way out of this, the city’s just going to be under more and more pressure from more taxes. We have to look at alternatives,” like moving the New York Stock Exchange out of New York!

Meanwhile, the welfare state is still growing—the result of popular pressure from below. There are sit-ins at welfare offices in the city, there are takeovers at Lincoln Hospital in the South Bronx Organized by the Young Lords, there are protests at City College and throughout the CUNY system to open the school and make it more representative of the racial diversity of the city leading to the adoption of an open-admissions policy in 1969 so that now anybody in the city is able to go to college if they have graduated from high school—again, for free. This is all met with increasing anxiety from the city’s elite.

Shenk: So you have these thwacks to the city’s tax base, diminished support from the federal government, and stubborn demands for continuing public policies that people are claiming as rights. And the solution to this problem that New York City officials decided upon was, in a word, debt.

Phillips-Fein: In some ways, even after working on this I think, “What exactly were they thinking was going to happen?”

Shenk: There are some shocking stories in your book of people just not knowing what they were doing.

Phillips-Fein: There was a very high level of chaos in the city’s basic bookkeeping operation. There was uncertainty such that I think, on some level, people in the city government did not fully know how much debt the city was taking on.

Shenk: Were they worried that if they looked too hard they might find something they didn’t want to see?

Phillips-Fein:  I do think that there is a kind of evasion—a sort of gamble on the future. City officials were hoping that somehow they would come into more money, from the federal government or from some other source, and they did not want to take seriously the political conflicts that were emerging around the scope and size of the city government.

Shenk: So all these burdens fall on the shoulders of Mayor Abraham Beame. What was his background coming into this crisis?

Phillips-Fein: Beame had grown up in poverty on the Lower East Side. He was brought to the country as an infant; his parents were fleeing Tsarist Russia. His father was a socialist. His mother died when he was young. He had some neighbors down the block who were killed in the Triangle Shirtwaist Fire. His father took him to hear Eugene Debs speak at the Jewish Daily Forward building. He grew up around the settlement halls of the neighborhood, and he emerged out of the world of the city’s welfare state. He went to City College, where he studied accounting, and then he became active in the city’s Democratic machine and built his career through these machine relationships.

Shenk: Despite this radical childhood, it seems like he came into office without much of an ideological agenda at all.

Phillips-Fein: Irving Howe actually has a beautiful description of him in the book World of Our Fathers. The world of Jewish socialism didn’t really stay with him. Beame was no radical by any stretch of the imagination. He was no political thinker or theorist. He was not an inspiring speaker.

But I think growing up in the world of the welfare state worked its way into his basic assumptions about the world, and it was inconceivable to him to think of doing away with basic public goods. He took things like the later attacks on CUNY as a personal insult: he felt that he himself would not be where he was were it not for the free tuition. I view him as a somewhat tragic figure. He was caught between two different visions of the world. He was not going to mount a full challenge to the remaking of the city, but he also instinctively could not let the old vision of the city go.

Shenk: Did he also feel, to use a phrase that would come up much later in American history, that New York was “too big to fail”—that a bailout would come along eventually?

Phillips-Fein: I think that’s really true. He was not alone in this. He and many others had the sense that city couldn’t be allowed to go bankrupt, and that at some point the money was going to arrive.

One of the things I think the book contributes to the existing work about the fiscal crisis is the central role of the comptroller’s office.

Shenk: The comptroller’s office, by the way, seems like a fun place to have been in the early 1970s. One of the key characters in your book is a Harvard business school alum who kind of drops out of society, winds up in the comptroller’s office, shows up to work every day in a dashiki and jeans.

Phillips-Fein: Yes, there is this younger generation of people who wound up working for the city who have some countercultural ties. This is right after Nixon’s left office, in 1974 and 1975. The United State has just lost the Vietnam War. It is a time of disillusion with elites and with the existing social order.

And the people working in the comptroller’s office start to express doubts and fears about the city’s finances—especially about its bookkeeping practices. They don’t have any kind of underlying allegiance to the order of things in the city. Their memos and conversations are part of what triggers a growing fear among the city’s banks and a growing unwillingness in the city’s financial community.

Shenk: And this period becomes the key point in the crisis.

Phillips-Fein: You can see, at this point, that problems are emerging. And it’s not a complete secret: the New York Times reports periodically on how the city is increasingly raiding its capital budget to pay for annual operating costs. Nonetheless, the banks are happy to keep selling the debt to a national market, they’re happy to keep holding it themselves, the rating agencies are happy to give New York’s bonds strong ratings; and there is again this sense that New York is the country’s largest, most powerful city—how could it actually approach bankruptcy?

Over the course of 1974, Beame’s first year in office, confidence in the city starts to fail. Another important part of this story is the changing interests of the banks. This is the beginning of the era of financial deregulation. It is a time when the major banks in the city are expanding their overseas operations and investments. This has an effect on their tax structure—the taxes that they’re paying, some of the tax advantages they had previously had for holding municipal bonds are not as strong. They’re less geographically focused on the city.

Shenk: They now feel like they’re now part of a global marketplace rather than pure New Yorkers?

Phillips-Fein: Right. In the spring of 1975, with signs emerging that the city’s finances are really unstable, the banks decide, “We’re not going to do it any longer. We’re not going to underwrite the city’s debt offerings.” And that is where a difficult fiscal situation turns into the fiscal crisis. After that point it’s not clear how the city will keep operating.

Shenk: Do you think the bankers were justified in doing this or were they manufacturing a crisis?

Phillips-Fein: This points to larger issues but, yes, I think in a sense they were justified in doing it. Banks were legitimately worried about the safety of their investments, and about whether it made sense from a financial perspective for them to underwrite this debt. They were also worried about the legal implications. I don’t see them as saying, “We are going to engineer this crisis in order to transform the city.” I don’t think that that’s how ideology works or how elites exercise power.

But at the same time, were there other options for them? Yes. I also believe that they made a choice.

Shenk: At this point, Beame starts looking for help from other branches of the government. And President Gerald Ford’s response to Beame’s request—summarized famously by the New York Daily News—is “Drop Dead.”

Phillips-Fein: Beame, along with the Governor of New York State, Hugh Carey, go to Washington, D.C. and they ask the Ford administration for help. What causes the crisis to wind up having this larger effect on the city’s politics is the Ford administration’s gleeful intransigence in denying New York assistance.

Shenk: You quote Donald Rumsfeld as describing his position as not just “No,” but “Hell no.”

Phillips-Fein: Right, he says it would be outrageous to go along with New York, both for the precedent it would set and because it would delay the cleaning up of their mess.

Ford is also advised by Alan Greenspan, in his first public role as the chair of Ford’s council of economic advisers. He’s only recently out of the Ayn Rand inner circle. Greenspan and this cabal of conservative economists manage to convince themselves that default would not be a bad thing. It would, instead, have a cleansing effect. They put that idea out there, and it becomes a realistic option.

Shenk: Even Ford, who is not a movement conservative, couldn’t wrap his head around the notion of free college for people. He’s so intent on symbolic issues in a way that just seems dickish in retrospect. He tells Beame, “Why can’t you just raise subway fares by 15 cents,” and Beame says, “That won’t do anything to fix the problem” and Ford’s response is, “But it will show that you’re serious.”

Phillips-Fein: Right, and there’s a very strong sense of wanting to find things that the city can do that will demonstrate to investors that the city has really changed, that it is not going to pursue the kinds of welfare-state policies it previously had adopted.

Shenk: The book’s subtitle is “New York’s fiscal crisis and the rise of austerity politics.”  Even if bankers didn’t come in with the sense that they could use the crisis to institute austerity measures, the White House did seem to view this as a chance to impose austerity.

Phillips-Fein: In the White House there is a stronger sense that this is an opportunity to teach a political lesson.

Shenk: To show that liberals brought this on themselves?

Phillips-Fein: And that liberals would bring this on the entire country. New York has to adopt a budget cutting and belt-tightening mentality: that is the same thing that the United States on the whole has to do. What happens in New York should be so severe that no city will ever want to go down the same road again. They view it as a chance to teach a political lesson to New Yorkers, to other city dwellers, and, in the end, to the country as a whole.

Shenk: Beame tells Ford that he’s already cutting as much as he can without sparking a social crisis. Was he right?

Phillips-Fein: Growing up in New York, the dominant narrative about the fiscal crisis is generally that the city had no alternative, that people accepted it and lived with the cutback. That is in really deep ways untrue. The cutbacks actually generated a great deal of active resistance, as well as a pervasive sense of discontent.

Over the five years that followed the crisis, the city winds up cutting the people working for the police department by around 20 percent, the fire department loses about 10 percent of its employees, the board of education around 14 percent, the sanitation workers around 19 percent, parks and maintenance are cut back very deeply. All these different basic city services are cut back heavily.

Shenk: And this is all facilitated by a budget management agency that takes responsibility for a lot of these decisions out of the hands of the city government.

Phillips-Fein: Yes, the state creates two state agencies: one which is supposed to refinance the city’s debts by issuing these new bonds backed by a different sales tax stream, and then a second agency, the Emergency Financial Control Board, which gets a final veto power over the city’s budget.

This board was staffed by the mayor, the city comptroller, the governor, and the state comptroller—and then three people from the private sector. There was no labor member, there was no representative of communities—

Shenk: Exactly, it’s like “take that, working-class New York!”

Phillips-Fein: African-American and Latino state legislators ask for a seat on the board; that goes nowhere. So the final power over the city’s budget comes to rest in this Emergency Financial Control Board, which doesn’t actually try to micromanage the city’s budget—and it’s actually interesting, there were debates within the board about whether they should push through a plan to reorganize the CUNY system or the health and hospitals corporation. But in the end, they don’t try to set policy directly; it’s more of check. And, in a way, the Beame administration later starts to use the board as a justification for the cuts it’s proposing.

Shenk: The administration gets to be the good cop, and the board is the bad cop?

Phillips-Fein: Exactly.

Shenk: That brings up one of the points I love most about this book. You note that this is not an outside imposition by reactionary conservatives. Bill Buckley is not dictating the decisions. This is a story of what liberals did when confronted with a crisis.

Phillips-Fein: New York’s leadership is mostly from the Democratic Party at this point. Even many of the bankers who become active in the city’s affairs are also Democrats: they self-identify as liberals, and they continue to do so as the crisis goes on.

It’s what it means to be a liberal that is shifting. They now come to believe that the first responsibility of the public sector is to encourage economic development and to aid the private sector, because otherwise there won’t be any resources for the public sector to do anything. They’re trying to modulate their stance towards business, to change the party’s relationship with both popular movements and the labor movement. And they’re doing this as changes are taking place in Democratic Party nationally over the course of 1970s.

Shenk: So is this a case study in the rise of neoliberalism?

Phillips-Fein: In a certain way I think it is. Neoliberalism is a complex, sticky concept, but it definitely is a story about shifts in how liberals think of themselves and what liberals value. It is also a story about the shift in the common wisdom about politics, and popular perception.

Shenk: One of the most significant beneficiaries of this shift is Donald Trump, who has a not-insignificant cameo in the book.

Phillips-Fein: Trump was in his late twenties in the mid-seventies, the son of a prominent outer-borough landlord and developer who owned tens of thousands of outer-borough apartments. But Trump’s father wasn’t an active player in Manhattan real estate, and Trump wanted to get into the market in Manhattan. His first major deal is developing the Commodore Hotel, near Grand Central Terminal. The Commodore was a beautiful, old, early twentieth-century hotel that had fallen on hard times by the early seventies and was going to be shut down.

Trump, working with the Hyatt Regency Corporation, proposes to buy the property, then sell it to a state agency and then lease it back from the city. Through this arrangement, Trump and the developers wind up with a significant reduction in property taxes—a reduction that, according to a New York Times story from late last year, has been worth more than $350 million to Trump and to Hyatt. They’re still not paying the complete property taxes on the hotel, which is now called the Grand Hyatt.

At the time, there was some anxiety about this in the city. How could New York, which was almost bankrupt, forego all this money in property taxes? Some of the people who have written about Trump see him as a canny developer taking advantage of a desperate city. There is a certain truth to that, but at the same time, the city administration really trumpeted the Trump deal, celebrated it as the first deal in a new program. It was meant to send a signal to the entire business community that there had been a change—to suggest that the city government is going shed the image that it’s directed toward welfare goals, and instead now recognizes and values the importance of corporate leadership and development in the city. And the kind of property tax deals that facilitated the Commodore redevelopment expand in the late seventies and afterwards.

Shenk: And so Trump takes us back to not only key themes in this book, but also to your first book, Invisible Hands—an essential work for understanding the making of the modern conservative movement. Did Fear City give you a different perspective on the rise of the right?

Phillips-Fein: Fear City is a story that takes place over a few years, whereas Invisible Hands told a story that began in the thirties and ended in 1980. One of the critiques of Invisible Hands was that it was telling too linear a story, that it did not do enough to take into account the problems, especially those of the 1970s, of the end of economic growth, and how that reshaped the whole terrain for American politics. This book is reflecting on that, and tries to take into account a broader shift—not just train its focus on the ascendance of the conservative movement, but to identify a shift in the whole political terrain that takes place at this time.

I don’t think you can understand the rightward shift of American politics just by looking at the emergence of a hard right of the Republican Party. It is a larger transformation than that: the transformation of the Democratic Party is critical, too. This book offers another way to think about some of those questions. Trump’s ascendance within New York real-estate circles, to give one example, really depended on the active participation and complicity of people in the Democratic Party establishment. It wouldn’t have happened without them. You can’t just look at him as a bizarre aberration that reflects a twisted part of the far right. That’s important too. But that’s not the whole story, and the larger question is, “What is the relationship of Trump’s rise—not just in the world of real estate, but ultimately in his political climb to the presidency—to a much more widely shared politics?”

Shenk: Rick Perlstein had a recent story in the New York Times Magazine saying that the election of Donald Trump is prompting a similar reconsideration of the history of conservatism as a whole. Perlstein argues that in the last couple of decades historians have taken the story that conservatives tell about themselves too seriously, that too much of the history reflects world as seen from the offices of the National Review. Basically, instead of drawing a line from, Barry Goldwater to Ronald Reagan to Trump, you could just as easily draw one from Joe McCarthy to George Wallace to Trump. What do you make of that argument?

Phillips-Fein: I really liked Rick’s piece. I have two responses to it. One is that, yes, I think it’s right that historians of conservatism need to do more to grapple with and to place the conservative mobilization, and Trump himself, in a much broader pantheon of conservative and right-wing politics. And historians should be aware of the resonances between American fascists, American Nazis, the second Ku Klux Klan, and the mainstream conservative movement.

Linda Gordon has a book, The Second Coming of the Ku Klux Klan, coming out that I think will be terrific. Fred Trump, Donald Trump’s father, may have been in the orbit the Klan. And even looking later on down the road, looking at the third KKK, or the one that emerges in the sixties to fight the civil rights movement and what happens to it afterwards, and looking at the violent libertarians of the Far West, all these people who are written out of the respectable right—

Shenk: The kooks that people like Buckley are supposed to have exiled from the movement in the 1960s.

Phillips-Fein: Recognizing that these groups were not just out-there freaks, but that their politics actually speak to a not-insignificant part of the American public. Even if they are not full members of conservative movements, their ideas resonate with people.

That was what I took from Rick’s article and I think that that is a really important project. At the same time, the answer is not to view that far-right mobilization as separate, but to think about its relationship to the so-called “respectable right.” There are points of connection, a resonance that make these not just fringe ideas but ideas that reverberate out into the broader culture.

Another part of Rick’s argument in that piece, which got less attention, is about continuing to think about the relationship between elites and the broader conservative mobilization.

Shenk: It could almost be a story of how conservative elites tricked themselves into thinking that the people were with them. The Koch brothers could really believe that there really was a populist base for the libertarian agenda. That was Ted Cruz’s theory running in the Republican primary, this idea that, “I’m going to be the movement conservative candidate and there’s nothing that can stop me.”

Phillips-Fein: Right, and that the populist base that they imagined just doesn’t really exist.

I do also think it’s a serious problem to think about holding these things together in our minds at one time, to look not just at the far right but at its relationship to the changes in liberalism that enable, and maybe drive, the rise of this extreme conservatism—to always be thinking about both at the same moment. Not to separate it out but to try to see it as part of a broader whole. That’s part of what Fear City tries to do.

One of the last parts of the book is about the blackout of 1977, which many people have written about, focusing on the wave of property destruction that follows the blackout. I was interested in how widespread this property destruction actually was—how it wasn’t just a group of young people of color breaking into stores and buildings—and the reaction to the property destruction and the viciousness of that reaction: the calls to bring back police brutality and shoot people on sight. That comes out of the context of the fiscal crisis, and the collapse of all of the social resources, the experience of austerity, and the withdrawal of support for the kinds of institutions that build a broader, common public life. It takes place at a moment when the city actually has been robbed, although by a very different group of people.

We need to look at those kinds of reactions and the violent far right as part of a story that’s about austerity—you could call it neoliberalism—and a broader set of attacks on public institutions. And I think that seeing the emergence of the far right in these terms also points to our political response, to the need to build a politics that replaces the limited horizons and cruelty of austerity with a spirit of social solidarity and mutual support.

Timothy Shenk is a Carnegie Fellow at New America and co-book review editor at Dissent. He is the author of Maurice Dobb: Political Economist.