Arnold Kling  

Government Overgrowth, II

Economic Policy Diversity... Regulatory Tariffs Vs. Quotas...

Was the stock market boom good for New York? Not according to Megan McArdle, otherwise known as 'Jane Galt'.

in an era of prosperity, city spending grew an astonishing $5.6 billion, or 25% - right up to the capacity of record capital gains income and Wall Street bonuses to sustain it. Now that the money is gone, politicians are still spending as if nothing has changed, even though the speculative stock valuations that fueled the lion's share of the growth are hardly likely to return. If a family member or friend were still spending money based on the value of his stock portfolio in February of 2000, we'd step in to stop it. Yet who will stage an intervention with our politicians?

For Discussion. Will New York City have to go through another bankruptcy in order to curb spending?

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COMMENTS (14 to date)
Keith writes:

Yes, and bears do sh%t in the woods.

Seriously, the attack on wealth creation can't be underestimated. From the lawsuits against tobacco, guns, and drug makers, to the state and city tax increases - its nation-wide, especially NY.

Jane Galt writes:

The problem is that this is taking place under the controls set in place by the last bankruptcy regime. During the fiscal crisis of 1974-6, the state took over a large degree of control over the city's finances. Now it's the state legislators who are hitting us with a 1-2 punch: they increased the state taxes, then denied any funding to help close the deficit and instead authorized the city to raise its income and sales taxes further.

Eric writes:

New York City folks can hardly complain about what Albany imposes upon them. They ARE Albany. New York City liberals control the legislature. What they want become law. Ask Sheldon Silver.

The dumbest New York Times article I ever read (and that's saying something) was about 1998 or so, and was an expose of the type of New York City elected legislators that run the place. They were all unreconstructed Trotskyites and such. The article was a big bitch piece about how these borderline insane people ran the show, and what damage they were doing to the city.

And if you think that these NYC legislators are doing a number on NYC, you should see what they did to Buffalo.

Jane Galt writes:

Believe me, I'm not trying to absolve the New York City folks -- Sheldon Silver and Giff Miller together seemed determined to eliminate every last job in the city. I'm just pointing out that last time, the way we got out of our crisis was to have the Legislature impose controls, which isn't going to work this time.

Believe me, I'm sympathetic. My mother's from a little town between Syracuse and Rochester, and I think of myself as culturally Upstate, even if I'm a City person geographically. ;-)

Eric writes:

Isn't it strange that, a year and a half after he stepped down, there is such a leadership gap in New York now that Giulliani is gone?

Is there any question as to how Giulliani would solve this problem? This fiscal crisis is a huge problem, but is it any bigger a problem than the crime problem in '93?

This is a man who lowered the murder rate from 2500 per year to less than 600 per year, after all!

Maybe it doesn't take a Giulliani to get things done. Bllomberg got control of the schools, something Giulliani never could do. So it seems more like Bllomberg doesn't want to downsize spending, not that he is unable to.

Jane Galt writes:

I don't think that's quite fair. The City Council is, seriously, almost Marxist. That makes it very hard to restrain spending. What he didn't have was the political savvy or the courage to face down the private sector unions. He chose not to stand behind the MTA, and he traded a big package to the teacher's union in exchange for control. Well, now every other union is going to be lined up to get theirs. He doesn't have the popularity, engendered by both rising standards of living and ruthless publicity-seeking, that might have enabled Giuliani to take a bolder stand -- but Giuliani didn't really face down the unions either, which is why spending grew so much on his watch.

Eric writes:

Has anyone asked Giullianin what he thinks about the fiscal crisis? I'd like to know what he'd do.

With one in seven New Yorkers working for the City, I can see how cutting government bloat could be unpopular (and why the Council is marxist). But it doesn't seem to me that there is any other way. There is no way that these tax increases are going to work, they will just gut the economy, and soon it will be 1990 all over again.

And I would think that Bloomberg would know this.

David Thomson writes:

New Yorkers have nobody to blame but themselves for their financial woes. They have been throwing money around like the proverbial drunken sailor for decades. The stuff has finally hit the fan. Will things improve in the near future? Of course not! These financial drunks have yet to hit bottom. My guess it that it will minimally take another year before New Yorkers see the error of their ways. Also, I’m afraid that the Republican Convention being held next year might inadvertently cause further problems. The New Yorkers will be inclined to pressure President Bush for a handout. Sadly, they may focus on begging their way out of their crisis instead of acting like adults.

The citizens of my hometown, Houston, Texas, are expected to take care of their own finances. Why expect less of New Yorkers? Lastly, the New York Liberal establishment has long been slandering the citizens of Texas. How does that old saying go? What goes around comes around? I hate to gloat, but the temptation is overwhelming.

Eric writes:

David, you couldn't find two American cities more different than Houston and New York. Houston is horizontal, New York is vertical. Houston is growing and building, New York hasn't built anything since the 1960's. Everytime I go to Houston I marvel at how much road building is going on. If I had to be a commuter, Houston would be my city of choice, because they actually DO something about the traffic.

New York hasn't built a highway since 1969. New residential construction is a small fraction of that built in Houston. And unlike New York, Houston's boundaries are actually growing along with its population.

Houstonians can't comprehend rent control. That's why what goes for $2000 a month in New York rents for $300 a month in Houston.

You're right, New Yorkers sneer at Texans. In reality, people wise, I'd rather live with Texans than New Yorkers. Texans are better people. I guess you could say that I am a Tex-o-phile and a New York-o-phobe. But it is based on personal experience.

David Thomson writes:

Eric, I appreciate your kind comments. New York will not disappear off the face of this earth. If nothing else, the city’s ports guarantee that it will remain a major economic player for many years into the future. But why do any bond traders or stock investors need to reside in the Manhattan area? I still adamantly believe that the World Trade Center would have been the butt of jokes in another ten years. It was rapidly becoming irrelevant by the time the terrorists struck on 9/11.

Texans, thankfully, mostly vote for conservative candidates. Even our Democrats are often more conservative than their counterparts in other states. Republicans now control the Texas Senate, the House, and Rick Perry is our governor. Self righteous utopian Liberals have been thoroughly marginalized. The citizens of New York, however, have elected every fruit cake idiot who promised them a free lunch. Nobody told them to do this. The stuff is now hitting the fan and New Yorkers must begin acting like adults.

How much have we Texans been slandered by New Yorkers? I’m sure that if one was to poll across the United States, Texans would be described as a bunch of racist reactionaries who normally drag black people behind their trucks. The vile and deceitful New York Times, in particular, highlighted the negative.

David Thomson writes:

“Hedges sympathized with U.S. soldiers. He characterized them as boys from places such as Mississippi and Arkansas who joined the military because there were no job opportunities.”

I just found about (via New York Times Pulitzer winner, Chris Hedges, peculiar anti-war graduation speech at Rockford College. Please note the not too subtle condescending hint that young men (did Hedges forget the young ladies?) that join the military are supposedly yahoos from places like Mississippi and Arkansas. Am I being unfair to imply that Hedges believes New Yorkers of the same age are more sophisticated and hostile toward America’s current foreign policy?

The New York Times has caused tremendous damage to our country. Once again, nobody told the citizens of New York to support this vile rag. They didn’t listen to rational people, but instead opted to embrace the economic views of the New York’s Times editorial staff. They now have to pay the price!

Eric writes:

NYT circulation in the Tri-state area is DOWN. Sulzberger Jr. is LOSING to Murdoch's Post.

I wonder, did Artie Sulzberger Jr. get his job based on MERIT? Could GUILT be the reason that he pushed quotas at the times so hard?

Will Artie III work at the Times? There's an opening now that Jayson Blair has been canned.

Jim Glass writes:

"The problem is that this is taking place under the controls set in place by the last bankruptcy regime."

Another fundamental difference is that last time the city was actually *broke*, bankrupt, it couldn't pay its bills - it had been borrowing to pay operating expenses and lenders stopped lending to it.

As a result of that the law was changed so that the city has to run a balanced budget. All the big new taxing (and minor cutting) is being done to keep the budget balanced -- as a result it is nowhere near bankrupt.

As long as the law is followed the city will never go bankrupt, it can't. OTOH it may eviscerate itself by motivating the very small high-income portion of the population that pays the bulk of its income tax revenue into leaving its confines.

The shape of the Laffer Curve is very different for a locality that charges three times the tax rate charged the next town over than it is for the US as a whole. Right now the city is offering to pay for my mortgage if I move from my little Manhattan apartment to a nice house in New Jersey or Westchester.

"New York City folks can hardly complain about what Albany imposes upon them. They ARE Albany. New York City liberals control the legislature"

For the Democratic-controlled Assembly that's sure true, and that's what counts for all this. So the argument "Albany mandates it" always reminds me of the scene in Blazing Saddles where the mob is coming to lynch the sheriff until he points his gun at his own head and says "Stay back or I shoot!" Then the mob leader says, "Uh, oh, I think he means it", and they all back off. Then the sheriff walks away free saying "they are *so* stupid". Stand in taxpaying voters for the mob and there we are. (Of course the municipal unions individually use this trick too -- especially the teachers' union -- all their best perks and protections are "mandated" by Albany at their own behest.)

"Is there any question as to how Giulliani would solve this problem?"

Well, yes, he was a very mixed bag fiscally. On the one hand when he first took over he had a fiscal problem of his own and got some real concessions and productivity improvements from some unions by threatening to crack heads. And yesterday he said the city should be cutting taxes rather than raising them.

But on he other hand during the boom he happily exploded the budget to all-time highs in spite of warnings from the fiscal experts that it could lead us to being just where we are. He largely created this mess by being as willing as any other pol to push the temporary boom-time tax revenue into bigger permanent budget lines to buy political support.

Eric writes:

I understand that there was a first term Giulliani and a second term Giulliani, and that they were different people. The second term Giulliani was a shell of the first termer. It is he who went wobbly on spending, and a lot of other issues. In many ways 9/11 redeemed the second term Giulliani (does anyone remember the second termer's crackdown on jaywalking? I think not.)

So I revise my question. What would the first term Giulliani do about the current fiscal crisis?

In my best John Mclaughlin imitation, "Answer: He would cut taxes AND spending!".

Jim, I tell every New Yorker I know that they need to consider moving. And not just from the City, but right out of the state. Life is too short to be working for anyone other than yourself and your family. Why should you pay a premium just for the "privelage" of living in New York? I hear good things about New Jersey, if you simply must continue working in Manhattan. Even better, make a clean break and move out of the Northeast entirely.

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