For the city and state of New York, and for many other northern cities and states, the economic realities of the election are going to be felt very soon. They are both inevitable and harsh, and they will require new thinking and new policies on the part of our political leaders.
Whatever questions one may have about the underlying meaning of the new administration’s electoral mandate—whether the election should be seen as a floodtide of conservatism or simply as a demand to “throw the rascals out”—the economic content of that mandate, as well as the commitment of the new administration, is very clear. Economic growth and improved productivity are to be sought through significant incentives to private investment and savings. This, to speak generally, will be implemented by: 1) across-the-board tax cuts, possibly 30 percent over three years (the Kemp-Roth plan); 2) increased defense budgets; 3) offsetting reductions in non-defense programs. Such a program is intended to result in a reduced and balanced budget before the end of the presidential term.
Even if the incoming administration had second thoughts about certain aspects of this program, its newfound majority in the Senate and greater strength in the House have created a powerful dynamic working against any basic compromises of its goals. Super-imposed on the current economic situation, this program has almost automatic consequences for those in states like New York, regardless of ideology, regardless of party.
The current facts of economic life are as follows:
—a basic inflation rate of at least 10 percent, unlikely to be reduced during the next twelve to eighteen months;
—a federal deficit of about $50 to $60 billion for the current and coming fiscal years;
—a Federal Reserve policy of monetary restraint with a current prime rate of nearly 20 percent, pushing the economy back into recession;
—current imports of almost $100 billion per annum for crude oil (about ten times what they were five years ago), requiring high domestic interest rates to keep the dollar stable abroad.
In addition to the national and international situation, the regional structure of the US is undergoing great change. Between 1980 and 1990, decontrol of oil and gas prices will generate about $120 billion of added revenues to the energy-producing regions of this country. This is, in effect, a tax which will be paid by the consuming regions of the Northeast and Midwest in the form of royalties and severance payments.
An arc of economic crisis now stretches from Baltimore to St. Louis, consisting of older urban centers and older basic industries that are in serious difficulties. Cities like Philadelphia, Cleveland, Chicago, and Detroit are trying to cope with serious deficits while being tied to automotive and steel industries in similar straits. Unemployment rates of 5 1/2 to 7 1/2 percent in Texas, Arizona, and Louisiana can be compared with rates of between 8 and 14 percent in Michigan, Illinois, and New York. A recent study of the Conference Board, published in the Wall Street Journal, shows…
This article is available to online subscribers only.
Please choose from one of the options below to access this article:
Purchase a print premium subscription (20 issues per year) and also receive online access to all all content on nybooks.com.
Purchase an Online Edition subscription and receive full access to all articles published by the Review since 1963.
Purchase a trial Online Edition subscription and receive unlimited access for one week to all the content on nybooks.com.