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New York City's Fate Depends on the Bailout Plan

Author: Amity Shlaes, Former Hayek Senior Fellow for Political Economy
October 1, 2008
Bloomberg.com

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Paulson versus Pelosi. Goldman versus Lehman. Obama versus McCain. Crises always alter the terms of power struggles.

Beyond the obvious contests, there's a less-discussed duel affected by the latest news. It is one between two capitals: New York and Washington. And this time, New York may well go down, with consequences for the nation that are even broader than those caused by, say, the death of Lehman Brothers Holdings Inc.

Consider the nature of the NYC-D.C. contest, essentially a federalist one. Just as Shanghai checks Beijing, Mumbai checks New Delhi and Frankfurt once checked Bonn, New York has long checked Washington. Most observers deemed the dynamic salubrious.

"New York is an imperial city,'' U.S. President Calvin Coolidge noted in 1925. Coolidge praised "the wisdom of the fathers in their wise dispensation which made Washington the political center and left New York to develop into its business center. They wrought mightily for freedom.''

In the past decade, New York has held its own against Washington. If every hedge fund wasn't based in New York, the hedge-fund industry was still New York-like in culture. It provided evidence of what markets could do when Washington regulated less. Private-sector jobs proliferated. Crime in New York was lower than in the District of Columbia. The influence extended to the sartorial: Instead of the old florals, women in Washington began to don New York black.

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