Fear City Redux:
Is NYC Headed for Another Fiscal Crisis?
For those who prefer audio, a volunteer has provided a reading of the below article
This time it’s different. Just like last time… and the time before that… and…
I read a lot of books when I was getting my MA in US History. No, you don’t understand, a… lot… of… books! Some were good, others were awful, but the best gave me something to think about. Two of my favorites were Elizabeth Hinton’s From the War on Poverty to the War on Crime: The Making of Mass Incarceration in America and Kim Phillips-Fein’s Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics. The former book was the reason I wanted to pursue my PhD on Mass Incarceration before discovering that there’s no room in academia for someone who wants to argue that people are in jail because they broke the law (more about that here).
The latter did not play a significant role in my education but was nonetheless a fascinating story of what led to New York City almost declaring bankruptcy during the 1970s. It’s also a book that reveals how fiscal crises come about and how NYC may once again be heading down that road.
Fear City is a great book! One can almost look past the author’s failure to identify the real lessons from the crisis. Phillips-Fein argues that more should have been done to protect and help the poor and working class during the city’s 1975 fiscal crisis instead of prioritizing financial markets and elites. If that sounds familiar, it’s because it’s almost word for word what progressives and socialists argue today. Unfortunately, it’s based on a fantasy.
NYC’s Fiscal Meltdown: A (Brief) Timeline
A few thousand words cannot provide a detailed analysis of what led to the crisis of 1975, but it can provide an overview. At a high level the fiscal crisis was driven by a very generous welfare program funded by borrowing which was exacerbated by an unwillingness to face fiscal reality, arrogance, and political cowardice. Some of the highlights include:
1940s–1950s: Expanding Social Services and Infrastructure
NYC builds a modern welfare state: The city expands public housing, public hospitals, low-cost or free college (CUNY), public transit subsidies, and sanitation services.
NYC offers services beyond what other cities or states provide, heavily funded through municipal bonds and state and federal aid.
1960s: Borrowing Increases Amid Declining Revenue
Decline of manufacturing and white flight erode the city’s tax base.
Rather than cutting services, city leaders (notably Mayor Robert Wagner and later Mayor John Lindsay) borrow heavily to maintain services and cover operating expenses.
“Short-term borrowing” becomes increasingly common to plug annual budget deficits, a dangerous break from previous fiscal norms.
Late 1960s–Early 1970s: Creative Accounting and Reliance on Wall Street
The city engages in “off-the-books” borrowing, using city-controlled agencies like the Housing Development Administration to issue bonds that don’t appear on the main city balance sheet.
Wall Street banks, seeking fees, continue underwriting these bonds despite increasing signs of instability.
Federal aid starts to decline under Nixon, worsening the city’s position.
1974: Budget Tricks and Bond Dependency Reach a Tipping Point
The city issues billions in short-term notes to pay off long-term obligations, a Ponzi-like cycle of debt rollover.
State and federal governments refuse to bail out the city, signalling to investors that NYC might default.
Wall Street banks stop buying city bonds by early 1975, causing a liquidity crisis.
1975: The Fiscal Crisis Erupts
Spring 1975: New York City faces a cash crunch and cannot pay its bills.
April 1975: The Municipal Assistance Corporation (MAC) is created by the state to issue new bonds and manage city debt—but bondholders demand cuts to services and layoffs in return.
Ultimately the city was able to avoid bankruptcy, but only because the federal government provided limited short-term loans. These loans only became possible because the city agreed to massive austerity measures: cuts to services, wage freezes, tuition at CUNY (ending free college), and layoffs.
Competing Takeaways
Phillips-Fein’s conclusion is that more should have been done to protect the poor and working class rather than prioritizing investors and elites.
Here’s mine:
If you live beyond your means, eventually it bites you in the ass.
This wasn’t a one-party failure. Between 1954 and 1975, all three NYC mayors expanded or preserved social programs, but none took meaningful steps to match spending with revenue. Each delayed reform. And collectively, they created the conditions for collapse.
The arrogance was that every politician in NYC felt that Wall Street was morally obligated to keep letting the city borrow more and more money. None seemed to understand that bankers were lending other people’s money and that they had a fiscal responsibility to those investors. It may have taken 20 years but eventually the bankers said “no.”
Why does this matter now?
Two words: Zohran Mamdani
Zohran Mamdani is a progressive New York State Assembly member representing District 36, which includes parts of Astoria, Queens. He is a member of the Democratic Socialists of America (DSA) and recently won the Democratic mayoral primary, making him the front-runner in the November 4, 2025 election for mayor. The history of the NYC fiscal crisis is important because many of the public services New York City provided prior to the 1975 fiscal crisis align closely with the policies and vision of Mamdani. Some highlights:
1. Free Public Higher Education
Then: CUNY colleges were tuition-free.
Mamdani Now: Supports free college for all New Yorkers, including full restoration of tuition-free CUNY. He is a co-sponsor of legislation to eliminate tuition at CUNY and SUNY.
2. Public Health Care Access
Then: NYC operated a broad public hospital system offering low- or no-cost care.
Mamdani Now: Advocates for single-payer universal health care in New York State via the New York Health Act.
3. Affordable Public Transit
Then: Fares were heavily subsidized by the city and state.
Mamdani Now: He is one of the most vocal proponents of free public transit, calling for Fare-Free MTA.
4. Public Housing
Then: NYC maintained the largest public housing system in the U.S., with heavily subsidized rents.
Mamdani Now: Opposes privatization of NYCHA units; supports fully funding and expanding public housing as well as freezing rent.
5. Expansive Social Services
Then: NYC offered generous welfare and support services for families, youth, and the elderly.
Mamdani Now: Supports expanded public services including guaranteed housing, food assistance, and publicly funded childcare.
Then there are the publicly funded, nonprofit government grocery stores which not even pre-1975 New York City politicians had the gall to advocate.
Admittedly there are differences. While pre-1975 NYC often offered services without structural funding reform, leading to a reliance on borrowing, Mamdani and the DSA emphasize taxing the wealthy, ending corporate subsidies, and redistributive fiscal policies to fund social programs sustainably. Will it work?
I’m skeptical.
Will the Rich Stick Around?
One of the causes of the 1975 crisis was a decline of manufacturing and white flight which eroded the city’s tax base. Why wouldn’t the same happen today? Why would “the wealthy” put up with higher taxes when they could just move an hour away?
As is often the case with Democratic politicians, Mamdani has little if any real-world experience. He has a bachelor's degree in film and media studies, worked as a foreclosure prevention housing counsellor, pursued a career as a rapper under the name Mr. Cardamom, and was involved in community organizing and activism. You’ll excuse me if I question his understanding of finance and history or ability to oversee a $100+ billion city budget.
His supporters will argue he’s not a communist but a social democrat. Potato, potahto. Labels aside, what I see is a desire to return to policies and services that almost bankrupted a city based on an inability or unwillingness to learn from history. “This isn’t communism” is uncomfortably close to “that wasn’t real communism.” You don’t need to be a scholar of history to know how societies founded on socialism ultimately end. In fact, all you really need to know is summed up in this meme:
It's clear that voters in the recent Democratic primary don’t know their history. For the sake of New York City let’s hope the voters in November do.
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Phil (Hoisttheblackflag) is a writer and classical liberal who, when not complaining about the Ottawa Senators, writes about politics, individual rights, government corruption/abuse and free speech. He resides in Vancouver, British Columbia.
You can read more of his work at
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I lived in New York City for 50 years. It has always considered its people to be spoiled rich kids in the candy store, with Wall Street as everyone's rich Dad. It maintained budgets that would dwarf those of some entire countries, with the hubris of assuming that the financial center of the world would always be in its backyard. But in today's online age, much of that work can relocate to where it's cheaper to operate, and some already has.
Decades ago, the first generation of social welfare enthusiasts were certainly pie-in-the-sky idealists, but the ensuing generations have evolved into agenda driven opportunists. New York City will likely have to completely crash again before it comes back to its senses, much like cities like San Francisco are taking their first baby steps toward doing.
ZL
NYC is the Canary in the Coal Mine
Few people know who Bill E. Simon was in any context. Suffice it to say, he became the U.S. Secretary of Treasury under Nixon and Ford. He wrote a brilliant book, A Time For Truth, which was a clarion call for our country and put us on notice that we were headed for bankruptcy (as we surely are today). In making his case he give one of the best analysis of NYC’s financial crisis (see Chapter V—New York: Disaster in Microcosm).
“In 1975 New York City collapsed financially. The catastrophe was not a result of the recession. Nor was it a result the energy crisis. However severe the economic difficulties of the period, no other great American city collapsed. It was a problem unique to New York—but unique in only one sense. The philosophy that has ruled our nation for forty years had emerged in large measure from that very city which was America's intellectual headquarters, and inevitably, it was carried to its fullest expression in that city. In the collapse of New York those who chose to understand it could see a terrifying dress rehearsal of the fate that lies ahead for this country if it continues to be guided by the same philosophy of government.”
What philosophy of government is that: the aristocracy of pull and unions—The bureaucratic state and public unions
“Stop asking the government for "free" goods and services, however desirable and necessary they may seem to be. They are not free. They are simply extracted from the hide of your neighbors—and can be extracted only by force. If you would not confront your neighbor and demand his money at the point of a gun to solve every new problem that may appear in your life, you should not allow the government to do it for you. Be prepared to identify any politician who simultaneously demands your "sacrifices" and offers you "free services" for exactly what he is: an egalitarian demagogue. This one insight understood, this one discipline acted upon and taught by millions of Americans to others could do more to further freedom in American life than any other.”