Critical Moments during Fiscal Crises

 I am writing a second edition to my first book, Follow the Money, and have found interesting events that I had never heard or read about before. My book is an examination of how New York City mayors responded to the demands of federal and state officials as well as financial elites to the city's 1975 fiscal crisis in which city officials were forced to reduce the city's expenditures in order to balance the budget and avoid bankruptcy. Before I write about an interesting event, let me discuss the two political theories are often used to explain decision making around city resources.

The first competing theory is pluralism. The best example of a community power study examining liberal pluralism is Robert Dahl’s famous study of New Haven, Connecticut, Who Governs? Dahl concluded that there were multiple centers of power in which groups would come together in different configurations for a particular urban issue. In effect, there are a collection of interest groups all sharing in urban policy making. His thesis that no one group dominated policy making in New Haven was a direct repudiation of the second theory, Floyd Hunter’s book, Community Power Structure: A Study of Decision Making (1953), in which a small group of business leaders dominated Atlanta. Dahl’s book was a repudiation of C. Wright Mills book in 1956, The Power Elite, in which he described America’s power elites centered in a small group of people who dominated the three parts of society: military, economy and government, and such elites could easily move among the three sectors. 

Later G.William Domhoff in Who Rules America? (1967) increased those three parts to four adding ideology as a fourth part of society. Although Robert Dahl’s liberal pluralism dominated urban studies for the next twenty years, his thesis remained problematic. In 1978, Domhoff wrote a detailed critique of Dahl’s methodology and analysis, Who Really Rules? New Haven and Community Power Reexamined, in which Domhoff demonstrated that “social and economic elites did exist and overlap, that business did dominate urban renewal, that Yale University was very interested in New Haven’s politics, and that there was a downtown power structure.” This controversy has never died although some forms of elite theory are now quite popular among political scientists.

Now I have found a third area of interest that explains decision making around a city's resource allocation, and that is the psychology of personal relationships. During NYC's 1975 fiscal crisis, President Ford was adamant that he would not loan any funds to the city; in effect, no bailout. The struggle went on for months. President Ford's unwillingness to lend the city funding made it more difficult for MAC to sell its bonds to investors. If Ford was not willing to lend funds, why should investors invest in MAC bonds that were going to the city. If President Ford continued to deny the city a loan, the city would have ended up in bankruptcy proceedings.

Not only was Ford surrounded by conservatives that advocated no federal aid to NYC in its fiscal crisis, but his staff had interests beyond conservatism. What happened was that Governor Carey and Melvin Laird （chief of staff for President Ford）, friends from their Congressional days, played golf together and Carey heard this story from Laird. 

“Carey was told why by Melvin Laird, a former US defense secretary under Richard Nixon. “Jerry’s [the President] been told by somebody that when New York City collapses, Chicago may become the financial centre of the US,” Laird informed him. But who could be spreading such nonsense? “Well, Rummy [Donald Rumsfeld] comes from Illinois,” Laird confided. “Rummy – he’s your problem!” [1] Add to that, Ford was running for election facing Ronald Reagan; consequently, Ford was determined to display a conservative approach to governmental problems. Governor Carey lauded Laird's help in getting President Ford to change his mind. 

What if Carey had not gotten Laird to intervene? Would Ford have changed his mind? This type of decision making isn't about business elites dominating the city. It's about a bureaucrat, namely Donald Rumsfeld, who favored his city over New York, and was influential with the President. And it is about two friends, Governor Carey and Melvin Laird, who outmaneuvered Rumsfeld. Too often, we ignore relationships politicians, financiers, and other influential people have with each other when we examine decision making. Yes, it may be elites that are making the decisions but why they make the decisions they do is not simply related to their political party affiliation or their financial interest. It may simply be who they play golf with.

---

[1] Baker, Kevin. 2015 May 18. Welcome to Fear City – the inside story of New York’s civil war, 40 years later. The Guardian. 'Welcome to Fear City' – the inside story of New York's civil war, 40 years on | Cities | The Guardian. A biography about Melvin Laird also told this story.