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From Fearful to Powerful: Rethinking Austerity and City Governance in the COVID-19 Era

Book Review: Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics by Kim Phillips-Fein; City Power: Urban Governance in a Global Age by Richard Schragger

By Jordan Fraade[1]

The twin catastrophes of COVID-19 and economic recession have upended many of the political and economic orthodoxies of the past half-century. A Republican president successfully passed two rounds of near-universal cash transfers from government to citizens, and was disappointed he couldn’t send more. An incoming Democratic president isn’t even pretending to care about budget deficits as he proposes almost $2 trillion in new spending. Even moderate Democrats like Joe Manchin are proposing trillions in new spending on infrastructure. As the ground shifts beneath us, some economists and policymakers have wondered if we are finally exiting the Age of Austerity. If so, it’s long overdue.

Most historians date the beginning of austerity politics to the 1980 election of Ronald Reagan, when it emerged as a key tactic of neoliberal governance. However, in her 2017 book Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, NYU history professor Kim Phillips-Fein argues that the New York City fiscal crisis of 1975 represented a sort of “dry run” in which economic elites, led by municipal bondholders, took advantage of New York’s economic distress to restructure the city’s provision of public services, cut its social safety net, and ultimately change “what it meant to be a New Yorker and a citizen,” all without ever facing an electorate.[2]

Fear City is at its most compelling when it details the human costs of austerity – the New Yorkers who suffered injury or death because their firehouses were closed, hospitals dismantled, and neighborhoods purposefully left to rot under the doctrine of “planned shrinkage.”[3] (Needless to say, the residents of those neighborhoods were largely Black and Latino, a fact that did not go unnoticed either by them or their elected officials.) 

Some of the vignettes are enraging. For instance, take Gerald Ford’s Treasury Secretary William Simon, a former municipal bond trader who lived on a 64-acre estate in New Jersey, who vowed to let the city go bankrupt and clucked at city leaders for selling too many municipal bonds, bonds that he himself was buying just a few years earlier.[4] Or city lenders demanding the mayor impose tuition at CUNY, not because it would raise a lot of revenue (everyone knew it wouldn’t), but because they valued the “symbolism” of charging working-class New Yorkers for something that used to be free.[5] At a time when COVID has plunged New York City and State into their greatest budget crisis since the ‘70s, Fear City provides a reminder that we have been here before. With hindsight, we know that austerity was a choice, not an inevitability. 

The book is not, however, a diagnostic manual for modern times. Fear City shows austerity’s undemocratic nature and self-defeating logic, and recounts the bad decisions made by New York politicians that hastened the onset of fiscal doom. But as Phillips-Fein notes at the outset of the book, the stage for the crisis was set by larger economic and cultural forces. Federal subsidies for suburbanization weakened the city’s tax base by encouraging the white and affluent to take wealth produced in common and hoard it where people of color could not access it. De-industrialization in the late ‘60s and early ‘70s decimated jobs and placed the newly unemployed on welfare rolls. Increasingly militant public-sector unions locked the city into salary and pension obligations it could not meet.[6] Changes to financial markets made investors less eager to purchase the municipal bonds that funded the city’s operations.[7] New York’s leaders made the situation worse by misleading the public about city budgets, but in the face of such a stacked deck, some sort of reckoning was probably inevitable. One gets the sense throughout Fear City that Phillips-Fein disapproves of how New York’s political and civic leaders dealt with the crisis when it came — by accepting a federal bailout and submitting to austerity in return. But Phillips-Fein never indicates what they should or could have done instead, and readers are left without a roadmap for how to fight similar demands for austerity today.

In this sense, Fear City is best paired with another book, City Power: Urban Governance in a Global Age by Richard Schragger. Schragger, a law professor at the University of Virginia, is interested in advancing a new, audacious theory of what city governments should be able to accomplish. In City Power, “power” has a double meaning: there is a city’s economic power, the investments it can attract from outside capital and the services it has the funds to provide to constituents; and there is a city’s political power, i.e., its ability to pass and enforce laws.[8] Under the status quo, Schragger views cities as both essential — “the chief economic engines in their regions, states, and nations”[9] — and relatively disenfranchised within the federalist U.S. political system. He notes that while states are sovereign entities with constitutional rights, “there is no individual federal constitutional right to an elective municipal government — or to any local government at all.”[10] This leaves local governments in a bind. They are responsible for generating wealth and providing essential services, but guaranteed few of the resources or political powers needed to ensure their own success.[11]

Compounding these difficulties is what Schragger calls the “decentralization-growth thesis,” or the widespread belief that a city government’s job is to attract economic development by offering low taxes, minimal redistribution, and corporate welfare; and that the competitive “market for location” provided by the decentralized political system of the U.S. is an effective way to “discipline” cities that have other ideas.[12]Throughout his book, Schragger provides a wealth of evidence showing that the link between neoliberal policies and economic growth is far less ironclad than many fiscal conservatives and business leaders insist — the sort of evidence that the local officials of Fear City would have loved to have at their disposal in 1975. Instead of competing for finance capital, Schragger believes city governments should “engage in more aggressive redistribution and regulation,” and provide concrete public services that improve residents’ lives.[13] Following his advice might even revive the “social democracy in one city” tradition that was the hallmark of New York City government up through the 1970s fiscal crisis. No doubt, Phillips-Fein and Schragger would both look favorably upon local governments re-investing in abundant parks, mass transit, and affordable housing, and building public health clinics, daycare centers, swimming pools, and libraries. 

Cities that pursue this vision don’t necessarily fail because of immutable laws of economics, Schragger says; their true obstacles are political and legal. This is where things get depressing. Suburbanization has continued its onward march since the ‘70s, and domestic migration has trended away from the North and East, towards the South and West. The result is that in fast-growing Republican-controlled states, state legislatures have preempted more progressive city governments from engaging in all sorts of basic policymaking, from passing paid sick leave to building public-transit lines to raising the minimum wage.[14] (Ironically, Schragger uses several living-wage campaigns as case studies of how social-welfare policies can successfully increase economic wellbeing, contra received economic wisdom, but he also notes that cities that want to pass such laws remain at the mercy of their states.)[15] Nor are “red states” uniquely harsh masters. After 1975, New York State placed extremely strict limits on the city’s borrowing and taxing powers, which remain in effect today. Faced with a $5 billion budget gap caused by the COVID shutdown, Mayor Bill de Blasio asked for permission to issue bonds, and Governor Andrew Cuomo refused while invoking memories of the fiscal crisis. What this analogy misses is that COVID was a single exogenous shock to a city with previously healthy finances, not the culmination of decades of mismanagement — and that after 9/11, a much less serious economic shock, Mayor Michael Bloomberg got state permission to borrow $1.5 billion and sharply raise property and income taxes.

Politicians have acted for decades like austerity is a self-evident moral good that instills discipline and character, but in fact it is a policy course whose outcomes should be measured according to whether they increase human wellbeing — and this policy course has proven disastrously inadequate to meet this historical moment. The federal government, which unlike state and local governments can print money and has spent the last year lending billions to states and localities, has an essential role to play in backstopping local budgets. Under Joe Biden’s proposed stimulus package, it would continue to do so. (Richard Nixon’s pullback of federal aid tied to Great Society programs was one factor that left New York City in the lurch and precipitated its fiscal crisis.)[16] Republican politicians complaining that state and local aid constitute a “blue-state bailout” are not only ignoring their own states’ dire budget situations, they seem willing to cause mass unemployment purely in the service of ideology, just as Gerald Ford was.

The creation of New York’s municipal social-welfare state required an alignment of historical, political, and economic circumstances that is unlikely to return. However, Fear City and City Power together can still provide a useful analytical frame for people who care about responsive, progressive local governance. There are legitimate debates to be had about what levels of government are best equipped to provide public services. But we should dispense with the notion that public services don’t need to be provided at all. During the first wave of COVID, some pundits took to spinning just-so stories about why the virus was ravaging New York, noting its inhabitants’ affinity for apartment living and mass transit, promising Americans in other parts of the country would have an easier time of it because they didn’t live like degenerate sardines. We know now, based on actual data, that these beliefs were premature and false. Perhaps it is time to retire another set of false beliefs about how cities function and what they can accomplish, and learn from Fear City and City Power that we have the collective power to build a new set of beliefs in their place.


[1] Jordan Fraade is an urban planner who lives in New York City. He has a Master’s degree in Urban and Regional Planning from UCLA and tweets at @schadenfraade.

[2] Kim Phillips-Fein, Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics 4 (2017) [hereinafter Fear City].

[3] Fear City 207-08

[4] Fear City 95-96

[5] Fear City 139

[6] Fear City 21-23

[7] Fear City 74-77

[8] Richard Schragger, City Power: Urban Governance in a Global Age 1-3 (2016) [hereinafter City Power].

[9] City Power 18

[10] City Power 79

[11] Fear City 81-83

[12] City Power 75-79

[13] Fear City 135-36

[14] See, e.g., Tony Cook & Kaitlin Lange, Repeal of Light Rail Ban Might Be Back on Track After Last-Minute Statehouse Manuever, IndyStar (Mar. 12, 2018), https://www.indystar.com/story/news/politics/2018/03/12/repeal-light-rail-ban-might-back-track-after-last-minute-statehouse-maneuver/417785002/; Brian Merchant, This Affordable Mass Transit Technology is Now All But Illegal in Tennessee, Vice (Apr. 16, 2014), https://www.vice.com/en/article/kbzwdm/the-koch-brothers-are-trying-to-ban-an-entire-transit-technology.

[15] City Power 139-49

[16] Fear City 24-25