New York: Ford's New Football

THANKS TO PRESIDENT FORD, New York City's financial crisis has made it into the national news. For months the city's agonies had been relegated to the business sections of papers elsewhere, and John Chancellor and Walter Cronkite had barely mentioned them. But an approaching presidential election and an administration determined to teach a spendthrift Congress a lesson have rescued New York from oblivion. Now people outside the state care if New York sinks: Ford is promoting its collapse.

There's no doubt that default is imminent. The market for new city and state bonds, despite their high returns, is drying up fast, while old notes are continually coming due. And there is little doubt that default will have disastrous consequences outside New York: the city is too important financially and the economy already too shaky for default not to have a significant impact. City and local bonds everywhere are already facing higher interest rates, partly because of New York's condition. Should the city default, municipalities will have a hard time finding any investors at all. The chairman of the House Committee on Banking, Currency and Housing is worried about "lethal fallout on the rest of the country and the world." Even Arthur Burns, chairman of the Federal Reserve Board, recently admitted that default could trigger a recession.

Only federal intervention can prevent default. It's not a matter of "bailing out" New York, as Ford would have it, but of giving the city time through federal guarantees for city bonds or direct loans. Mismanagement and incompetence have created many of New York's problems, so the city can significantly cut costs without drastically cutting services. But this requires careful planning and time. Default, in contrast, would force sudden and wholesale cuts, applied indiscriminately.

FORD AND HIS CRONIES are not willing to give New York breathing space. The city is to blame for the crisis, they claim. The administration consistently refuses to recognize New York's desperate attempts to overhaul and reorganize its budget, because such a recognition might imply that the city deserves help. Ford told a meeting of midwestern small city mayors two weeks ago, "Your constituents wouldn't tolerate it if you ran your cities as badly as New York City has been run." As Ford portrays it, there is no way to help an overgrown government that has been wasting money on social services. He has been claiming this for over a year now, vetoing bills providing such services, and if New York falls apart, he will feel himself vindicated.

And so Ford attempts to make political capital out of New York's crisis. It makes no difference that a study by the Congressional Budget Office refutes Ford's assumption that New York has been more profligate than other major cities. In the rest of the country, the city's image as a den of liberals, Jews and blacks makes it easier for Ford to distort the issue and deny New York the time it needs to avoid default. Ironically, Ford's plan may ultimately backfire, when as a result of New York's default even Grand Rapids, Michigan, finds itself in trouble. But that will be small comfort to residents of either city.

Default and its nationwide consequences are the real issues at the moment, but Ford has managed--despite many economists' dire warnings--to depict the question of federal intervention as a struggle between New York and the rest of the country. It is now a political choice between irresponsible social services and a balanced budget, between "socialism and freedom," as William Simon put it last week, while pushing the administration's new budget cut proposal.

Ford, in posing the problem this way, misrepresents more than New York's plight. The choice is not between inflationary government spending and freedom. It is between spending for services such as Social Security, food stamps, health care and education or spending for defense and helping out big corporations. Budget deficits and inflation stem from massive defense spending and inept Nixon and Ford economic policies rather than Federal social programs.

EVEN UNDER FORD, the Federal government is going to spend and intervene: it's just a question of who benefits. The people of New York are not worth helping, but Burns and the Federal Reserve are ready to help out the major commercial banks in case of default. And last week, just after blasting New York, Ford celebrated the 200th birthday of the U.S. Navy by announcing he would resist all efforts to cut defense spending. No item in the budget is more essential than that, he said.

The future of government spending for social services is at stake, but not because New York's crisis shows such spending ends in disaster. It is at stake because Ford, conservatives, and entrenched corporate interests are trying to use New York to whip up a reaction against public spending. If they are successful, the long-term steps necessary to help New York and other major cities, such as a Federal takeover of welfare costs and increased revenue sharing, won't be taken.

But major Federal aid to the cities is not now the issue, and to let Ford make it so is to precipitate New York's collapse--and that of other cities. Ford uses New York as a symbol, and obscures what it really is--eight million people. Congress has been accepting Ford's picture of the crisis, and is only beginning to understand that it won't be "bailing the city out" and sanctioning fiscal irresponsibility if it gives New York time to avert default. But while Congress considers action, New York approaches disaster.