Weekend Reading

Rounding out the Thanksgiving weekend, it’s always a good idea to enjoy some reading:

The conventional wisdom going into the election was that President Obama and the Democrats would have to galvanize the youth vote if they wanted a repeat of 2008. With nearly 20 percent of families, and 40 percent of young families, owing a slice of the education debt, the issue affects a large and growing constituency. And because existing student loan policy is so anti-student and pro-bank, Democrats could have proposed a number of commonsense, deficit-neutral reforms, even reforms that would have saved the government money. The stars were aligned for a major push.

Remarkably, it didn’t happen. Instead we saw dithering, half-measures, and compromises meant to reassure voters that politicians were aware of their suffering and that something was going to be done. The moves that were implemented did not address the core problem: the amount of money debtors will have to pay. For example, President Obama claimed credit for delaying a doubling of interest rates on federal loans from 3.4 to 6.8 percent, while, at the same time, ending interest grace periods for graduate and undergraduate students. The first measure is temporary and is expected to cost the government $6 billion; the second is permanent and will cost debtors an estimated $20 billion in the next decade alone. Despite his campaign rhetoric, President Obama has overseen an unparalleled growth of student debt, with around a third of the outstanding total accruing under his watch.

Part of the municipal debt story can be traced to New York City’s 1975 fiscal crisis, when the city almost defaulted on its debt. New York was able to avoid bankruptcy at the last moment by issuing guaranteed bonds backed by public pension funds. As a result, the Emergency Financial Control Board, the municipal body that controlled the city’s bank accounts, was in the position of rewriting the social contract, exerting control over labor at every level. Union leadership agreed to the deal because they feared a bankruptcy filing would void labor contracts. Only after the city had disciplined the unions did the federal government move in with rescue loans.

New York City had been debt-financed since the 1960s. But the fiscal crisis of 1975 inaugurated a new funding paradigm for distressed municipalities: taxpayer-backed debt is issued to service the debt already on the books. American municipalities are now increasingly financed not with public money, but with private loans, and the pace of this shift has accelerated since 2008.

Austin had adopted its at-large election system, in which there are no geographic districts or wards, in 1953. As long as the City Council was elected at large, campaigns had to be run citywide, and funded not by private donors but by the white business community, which in the ’50s and ’60s had no interest in giving minorities a seat at the table.

The Voting Rights Act threatened to undo all that, and so the gentlemen’s agreement was devised as an end run around the law—a way to provide minority representation while maintaining control of city governance, keeping a paternalistic and frankly racist system in place. Since its institution, white business interests—not the city’s black and Hispanic communities—have selected acceptable minority candidates and backed their campaigns.

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