Mayor Bloomberg appears to have won a third term — albeit by a close margin. His mission now must be to take on the public sector and prevent New York’s insatiable special interests from suffocating our chance at a healthy recovery.
The current Wall Street upturn is likely just another bubble. Zero-percent interest rates from the Federal Reserve, plus investors’ perception that Washington will never let an important financial company fail, have financial firms again raking in profits. Banks can borrow for free and use that money to speculate on anything — hence, the rise in the stock market, the debt markets, gold and oil.
Yet the profits aren’t sustainable. The truth is that, thanks to unprecedented government intervention, nobody has any idea what anything is worth.
The boomlet also delays Gotham’s inevitable fiscal reckoning, ensuring it will be even harder when it comes. Wall Street-related tax revenues are now coming in higher than expected. For the fiscal year that started in July, corporate taxes are clocking in at 16 percent higher than the city’s projections. Personal-income taxes are 9 percent higher — and they were 18 percent higher in September.
Yes, the city budgeted more conservatively than Albany — but this gives everyone cause for unhealthy complacency.
Bloomberg knows that we face a $5 billion deficit. But with Wall Street on Washington steroids and with another mini-stimulus for local governments likely on the way, he may figure that we can muddle through with cuts around the edges and more talk instead of action on labor reforms.
Eventually, though, the feds won’t be able to support Wall Street — and New York — with its too-big-to-fail policy and other interventions. The only thing that allows the government to do so is the world’s willingness to lend us trillions of dollars cheap, no questions asked. But this source is not infinite.
And, absent unhealthy government subsidies, Wall Street can’t continue to grow the way that it has — with the average wage on the Street having quadrupled in the past 15 years, producing the lush tax revenues that have allowed City Hall to keep on spending.
During Bloomberg’s first two terms, city spending grew by 31 percent after inflation — with the main increases coming in pensions, public-sector benefits, Medicaid and debt service. These four items consume over a third of the budget, and growing.
Indeed, they’ve been growing so fast that, even with Wall Street shoveling money into city coffers, they’ve consumed the cash that should’ve gone into vital investments in things like mass transit.
Washington’s policies have exacerbated this trend, too. Last week, the White House announced that stimulus funds have created or saved more than 600,000 jobs. But half of those jobs were in education — an area where New York doesn’t need encouragement to spend. Over the last eight years, the city has nearly doubled its outlays on the schools.
To put the city on a secure footing, Bloomberg needs to ignore the Washington and Wall Street bubbles — and make himself very disliked by powerful interests in his third term.
First: No raises for anyone — including teachers — until retirement ages for all future workers go up well beyond the current 55 (and younger for uniformed workers), and until workers pay a bigger share of health-care premiums.
Second: Just as the city can’t afford its union costs, it can’t afford a luxury nonunion workforce. The mayor should figure out whether he really needs 553 education administrators who earn six figures apiece.
Third: The mayor must work with Albany to cut our shamefully corrupt Medicaid program by 20 percent over his final term while improving care — saving the state, the city and federal governments $10 billion a year. He could split our savings between critical infrastructure and tax cuts.
Fourth: Bloomberg should press Washington on financial regulation — so that Wall Street is no longer “too big to fail,” but can compete fairly under market discipline.
These steps will prevent what is otherwise inevitable: another bubble masking ever-higher spending until it bursts — and leaving the city scrambling to protect policing and subways, because pensions and health costs that have grown even more out of control are consuming our shrinking tax revenues.
With good stewardship instead of bubble-directed management, the city’s economy can recover well, boasting a smaller, healthier government supported by a smaller, healthier Wall Street — and be home to other flourishing private industries, too.
Nicole Gelinas is a contributing editor to City Journal and author of the forthcoming “After The Fall: Saving Capitalism From Wall Street — and Washington.”