Whoever you are. Probably DeBlasio, but let’s count the votes. In a recent article, the New York Times reported that his margin in the polls means he is “flirting with a record win for a non-incumbent; that record is currently held by Abraham D. Beame, who won election in 1973 with a 40-point victory margin, the largest in an open race since five-borough elections began in 1897.” It is fitting. Another long time Room Eight poster predicted DeBlasio would be another Lindsay, but as far as I’m concerned that job has already been taken. Giuliani, Bloomberg, and the New York State Legislature have already re-Lindsayed with regard to the debts and pension enhancements/underfunding that the next Mayor will inherit.
In keeping with a tradition that goes back all the way to Wagner in the mid-1960s, the current Mayor will leave the next Mayor a city that is going broke. Bloomberg has vastly increased the city’s debt, in some cases to pay for investments that will pay off in the future, but in other cases to just get by for a few years. After underfunding the pensions following the massive retroactive pension increases of the 1995 to 2000 period, Bloomberg is again currently underfunding the pensions by $1 billion per year according to the BS estimates of the city actuary (the reality is more). Including underfunding the huge 2008 pension increase for NYC teachers that Bloomberg went along with. Moreover, Bloomberg has also cashed out the entire retiree health care fund he built up earlier in his terms. He leaves behind public employees who have become vastly richer relative to the average New York City resident, given their pension increases and the stagnation of everyone else’s wages, and who are nonetheless demanding in the press to become richer still – and that the next Mayor not negotiate in the press. And that is just part of it, as explained further below.
What was President Obama’s biggest mistake? He listened to his yuppie economists and expected that the post-2008 era would be just another recession, which could be limited and turned around by a “stimulus package” and similar measures. In reality it was the end – the collapse – of an economic era. An era of falling wages and yet rising consumer spending, with the combination allowing increasing corporate profits, executive pay, and inequality. The rising spending was enabled by a rising share of family members in the labor force, the loss of future income in retirement (which should have affected current spending as people adjusted by saving more but they did not), and by soaring public and private debts.
Check out, once again, the Total Debt chart in this spreadsheet.
The chart shows total U.S. debts, public and private, remaining more or less steady from 1952 to 1980. Labor’s share of national income was pretty steady during those years too, because businesses could only sell to workers based on the money they paid them. But total U.S. debts soared from 1980 to 2008, particularly in the Reagan and Bush II years but also under Bush I and Clinton, when the federal debt was falling as a share of GDP but private debts were soaring. Could that go on forever?
No, as Obama and the country soon found out. The U.S. has binged itself into bankruptcy and is facing a future of stagnation unless those debts (and pension obligations) are inflated on or defaulted away. Even will all the foreclosures, all the bankruptcies since 2008, as the Total Debt II chart shows the U.S. has barely made a dent in the debt run up over the prior 30 years. But the debt-fueled boom is over. Despite soaring federal debts, the economy is weak and stagnant. If Obama really understood the economy, he would have been making “Blood, Toil, Tears and Sweat” speeches instead of talking about “Hope” and an imminent, easy turnaround like the ones the U.S. borrowed itself to in the past.
As a result of Obama’s failure to understand the gravity of the situation, some now blame him for a sadder economic era that seems to stretch to the far off horizon.
So what about the next Mayor?
Another era may be coming to an end. An era in which New York City’s financial sector basically pillaged the country while shrinking down to a handful of much despised major firms. Wall Street doesn’t provide nearly as many jobs as it once did, after 20-plus years of office automation, outsourcing, and many moving operations to cheaper labor markets across the country and across the world. But the city and state budget are still dependent on taxes on the excess, unearned bonuses and profits that the financial sector has been able to grab.
Return to the spreadsheet and click on the tab “Finance Percent.” That chart shows the share of total U.S. private sector earnings accounted for by New York City’s Finance, Insurance and Real Estate sectors. In the 1970s, before the secular bull market of 1982 to 2000 started inflating, financial workers working in New York City earned about 1.0% of all the income earned by all private sector workers in the country. In 1974, that share hit bottom at 0.83%.
But during the bull market, Wall Street’s share of national private earnings at work soared, peaking at 1.88% in 2000. That when the New York State legislature retroactively enhanced the pensions of existing and retired public employees the most, and claimed it would cost nothing because Wall Street would pay for it all.
Since they, to keep the economy from utter collapse, the Federal Reserve has used rock bottom interest rates to, among other things, re-inflate the stock market twice. It is only for that reason that in 2010 and 2011 financial workers who worked in New York City got 1.67% of all the private sector earnings in the United States, less than in 2000 but well above the 1.30% average share for the entire 1969 to 2011 period.
Can the next Mayor, or the current Governor, count on this continuing? I think not. I can tell you that lots of other places are looking to start up their own financial sectors, without the baggage of past misdeeds, to take this part of the economy away from New York. And with less money around to steal, Wall Street is hurting.
Thus far Wall Street has been laying off workers and thus shrinking its ability to do its job, rather than cutting the pay of those at the top. But it may be that investors are waking up to the fact that they have received very little and top executives have paid each other very much over the past 15 years. And not just on Wall Street. According to Bloomberg News “Goldman Sachs Group Inc. (GS), which set Wall Street pay records when stocks surged and cheap credit abounded in 2007, is again leading the industry as markets boom anew: putting aside less money for staff and more for investors.”
That means less taxable income for New York City and, more importantly since may of those at the top commute in, New York State. Which will also affect New York City.
In reality, that chart of New York City financial sector earnings as a percent of total U.S. private sector earnings could be at or near the point where Total U.S. Credit Market Debt was in 2008. Heading for a fall.
I’m tempted to tweak so-called progressives, who pretend to be in favor of a better deal for ordinary people but in practice are only in favor of the political union class ripping off ordinary people as much as Wall Street does. “Would falling executive pay, falling pay on Wall Street, and lower corporate profits be a good thing or a bad thing? And if it is a good thing, who should be made worse off to pay for all those pension increases over the pay 18 years, and in what way?” But in reality, if New York City’s financial sector continues to treat its customers and investors the way it has in the past 15 years or so, New York City will not have a financial sector – and the taxes that go with it – at all. In the free market, unlike in the public sector, people can take their business elsewhere.
With all the “I’ll give you this and that” talk of the Mayoral elections, people have not been prepared for the difficult choices and diminished circumstances that Generation Greed has left for those coming after. That will not be pleased, and will probably blame the Mayor-elect – much to the delight of the unions, the state legislators, and former Mayors and Governors. Or perhaps the current Governor and Mayor-elect will seek to blame each other to advance their own careers. After all, their careers are what matters, right?
But you know what? Even knowing all I know, I’m not one to listen to any excuses either. Because whoever took office, and all the other people in office, are part of the crowd that benefitted from selling the future. So I don’t want to hear about “circumstances beyond our control” or “uncontrollable expenditures.” The fact that the next Mayor will end up being another another Mayor Beame isn’t fair. But unless I hear something very different, immediately and continually, it isn’t really unfair either.