The 1975 New York City fiscal crisis gets lots of historical and political attention, and rightly so. It was a turning point not just in city history, but in the history of US political economy; the crisis helped change the course of the nation. The slow turn away from the social and deficit spending of Keynesianism and toward neoliberalism and austerity were accelerated by the collapse of financing in New York. In the spring and summer of 1975, when facing a citywide economic depression and failing bond markets, the city decided to cut its budget, impose austerity, and rely on a new fiscal logic to “save the city.” This paved the way for similar approaches in other cities, and by the end of the decade and into the Reagan presidency the policy of austerity was increasingly used at the local and federal levels.
Many historians have sought to understand the crisis, most recently Kim Phillips-Fein in her excellent Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics. Phillips-Fein deftly shows how the move to austerity was less about fiscal necessity and more of a political choice, one laden with the contingent crises and rightward political drift of banks and businesses in the 1970s. She cogently argues that budgets are political, moral documents, and that they pose “inescapably political questions,” rather than strictly “accounting ones” to politicians and the public.
Phillips-Fein is right, but a detailed look at the budgets of the city reveals something deeper. By historicizing city budgets we can see that deficits were at historic lows in the 1970s compared to the overruns at the height of the Keynesian period in the 1960s. This tells us that rather than fiscal necessity driving austerity in the 1970s, it must have been other considerations that changed the fate of the city. In 1975, New York faced a classical Keynesian crisis, a depression in the real economy and a market failure in municipal bond financing, but it was a crisis without a Keynesian response. Instead of the state spending money to weather the downturn and grow through the trough, as was done in the 1960s, the city implemented a harsh form of austerity that cut jobs and services to the bone.
To better understand this turn, it helps to historicize city budgets. A quick look at previous decades reveals that New York debt in the 1970s was not at historic highs. A true measure of significance for deficit spending is debt to GDP ratios, but those numbers aren’t readily available for New York City. Instead, debt to revenue can show us the relative scale of deficits in historic terms for the period. Table one shows the relationship between city debt, revenue, and expenses as reported to the US Department of Commerce between 1960 and 1980.