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Obama and the Lessons of John Lindsay

Since we’re now in the portion of the presidential election campaign in which the parties hold their respective national nominating conventions, the urge to find historical comparisons to analyze the candidates will be even stronger than usual. But there is one comparison when contemplating President Obama’s re-election agenda that seems apt, but goes unmentioned: John Lindsay.

Lindsay, like Obama, was young, charismatic and telegenic when he ran for mayor of New York City in the mid-1960s. Like Obama, Lindsay ran as a moderate (he was actually a liberal Republican, but eventually switched parties to run for president as a Democrat), and like Obama Lindsay ran a campaign of hope and optimism at a time of dreary pessimism. But Lindsay also put in place some of the worst public policy New York saw in the 20th century, and the assumptions and outlook that led him to that legislation mirror those of the current occupant of the White House. If Barack Obama wins re-election, he will take office forty years after Lindsay left his, and the latter’s administration offers us a good case study of the weaknesses of Obama’s political instincts.

A great guide through the problems of the Lindsay years is Greg David’s new book on the economics of postwar New York: Modern New York: The Life and Economics of a City. David was editor of Crain’s New York Business for two decades, and the book’s chapters are essential snapshots of each mayoral administration during those years. David’s chapter on Lindsay is particularly relevant.

As David notes, to Lindsay, “Business’s primary role was to provide the revenue for city government to right social imbalances.” So tax hikes were an important first step for Lindsay, and he agreed with the New York Times, which defended the tax plan: “in an assumption fraught with consequences,” David writes, “the Times said that the city’s businesses and residents could afford to pay more.”

Lindsay sold his pro-government tax plan by claiming that the money was for hospitals, schools, fire departments, and so on. But Lindsay used the money in large part to balloon the public payroll and city budget. The hiring spree seemed like a way to offer city residents more job security than in the private sector (and to keep unemployment numbers down, even if artificially) until, thanks in part to Lindsay’s own policies, it became clear the city couldn’t afford those jobs. But no matter: Lindsay and his allies argued that government made it possible for the city’s businesses to succeed, and it was time they gave back (sound familiar?).

The new tax structure brought the results with which we are by now quite familiar: “Within a few years, the business tax became a crushing burden on the manufacturing sector it was supposed to save,” David writes. Indeed, the business income tax (instituted to replace a gross receipts tax), according the Budget Bureau, cost businesses almost 45,000 jobs in its first five years. In its sixth year, the rate was raised again, costing close to 10,000 additional jobs.

All the while, Lindsay thought he was doing just fine, in part because flight from the city kept unemployment lower than it would have been had New Yorkers stayed put (much like Obama’s unemployment numbers benefit from those who drop out of the work force). The country was experiencing a recession, and Lindsay simply blamed the recession he didn’t cause, not his policies (sound familiar?). Yet by 1971 the country’s recession had begun to give way to a national recovery–a recovery that, thanks to Lindsay’s anti-business policies, eluded New York City. “He had exacerbated the worst recession in the city’s history, assured the rise of an enormous public sector through his income tax, and established a system of rent regulation that would pit New Yorkers against each other,” writes David.

The failed rent regulation policies were a perfect example of the folly of government price controls. Residents of wealthy neighborhoods whose rent control was grandfathered in paid meager prices for buildings that were getting increasingly expensive to maintain, leaving the landlords without the money to do so and the city without as much as $500 million in lost property taxes.

It’s a familiar story: the government puts in place policies that drive up prices. Consumers complain, and so the government enacts price controls intended to curb the problem, but ends up aggravating it by distorting the market and forcing producers to make up the lost revenue elsewhere. Have the technocrats learned this lesson? Hardly. The Obama administration enacted its health care reform bill that would cause premiums to rise. Once they figured this out and consumers howled, the Obama administration began making plans to add–you guessed it–price controls into the mix. As it happens, Obamacare is already designed to increase price controls.

Lindsay actually won re-election, but he was forced to base a good part of his campaign on his own likeability and the lackluster charisma of his opponent (again, sound familiar?). That was all fine for Lindsay, but not for the city he served. His second term saw job losses mount—factory job losses tripled what they were in Lindsay’s first term.

The good news is that with more effective governing in subsequent administrations, the city eventually recovered from John Lindsay. It turns out that personal charisma and lofty rhetoric are no match for competent economic management.


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