From New York to Baghdad

George W. Bush
George W. Bush; drawing by David Levine

There is war in the Middle East. The President of the United States is about to open a new theater of war in Asia. The stock market has collapsed: computer, technology, and conglomerate stocks have been particularly hard hit, declining by an average of 80 percent or more as the Dow Jones went down by 40 percent. A crisis of confidence threatens the survival of the stock exchange and has resulted in the near collapse of several major investment firms and the closing or liquidation of another hundred as a result of phony bookkeeping and capital flight. The city of New York, the financial capital of the world, is edging toward bankruptcy and many Americans have deep doubts about the political and economic system.

That is what happened in the early 1970s. The Arab–Israeli wars had set off an oil embargo and caused a recession. President Nixon sent American troops on an “incursion” into Cambodia; the country’s economy was crippled by Johnson’s and Nixon’s refusal to pay for the costs of the war and American society was torn by protests. These crises were resolved by initiatives for peace abroad, and by bipartisan cooperation at home.

After 55,000 Americans had died, Nixon negotiated a cease-fire in Vietnam. Jimmy Carter, with Menachem Begin and Anwar Sadat, negotiated the Camp David Agreements, one of the reasons that Carter was awarded the Nobel Peace Prize this year. The New York Stock Exchange crisis ended with legislation protecting the assets of securities holders. The New York City crisis was resolved thanks to the leadership of Governor Hugh Carey and Mayor Ed Koch, the bipartisan support of legislative leaders in Albany, and the cooperation of labor and business on a series of painful measures to cut back expenditures. President Ford grudgingly provided modest federal assistance. It is worth looking at what is happening now in the light of what happened then, both to apply some of its lessons and to avoid some of its pitfalls.

New York City’s looming crisis is, once more, caused by New York’s vulnerability to the condition of the national economy, and particularly of its financial industry, as well as to the international situation. The recession of the 1970s and the collapse of the stock market were caused by war in the Middle East, higher oil prices, and the US invasion of Cambodia, all coming on top of the speculative bubble of the late 1960s. I would argue that similar factors are at work today. We are absorbing the collapse of the stock market bubble of the late 1990s and its related financial scandals. But New York, its economy, and its psyche are still feeling the wounds of September 11, and, as a result, the city’s economy and many companies located in New York are more sensitive to the possibility of war in Iraq and its likely aftermath.

The principles that…

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