Seventy Years Ago Today

Over seventy years ago, President Franklin Delano Roosevelt created the Works Progress Administration under the umbrella of the New Deal. It was one of largest government programs of its time and was responsible for an estimated eight million jobs. Through the WPA, public buildings, bridges, road construction and literacy projects flourished. The New York Times commented last week that the WPA was responsible for lifting country out of the depression. In New York alone, the WPA programs were transformative.

Also last week, Senator Charles Schumer (D-NY) announced a push for federal stimulus money to go towards elevator renovation in New York City. According to the senator, the city’s budget is “in terrible shape,” and he added that without federal intervention, the elevators, which were responsible for several deaths last year, would not get fixed. The senator is asking for almost $400 million to be allocated for these repairs.

Both the amount and future use of the federal funds are not surprising. A large portion of the stimulus package, at least $100 billion, is expected to aid hurting cities to avoid a crisis in education funding and other key services. New York especially has been hit hard this year. State lawmakers agreed last week to raise tuition for state schools and cut funding to power, environmental and other state agencies. Governor David Paterson has recently stated that the federal stimulus package will not be a miracle cure for New York, only echoing what has been known for some time. New York’s budget is in very bad shape.

It’s remarkable to note that only a year ago, sums of money in excess of $400 million dollars could be shifted towards renovations like the Governor’s Island project. Unfortunately we are no longer dealing with how to improve and add to the city’s parks but rather how to pay for health care and teachers. The New York of 2009 is a much more somber city than the New York of 2007. But are its financial leaders?

After an $18-billion bonus payout in 2008, the president, backed by members of Congress have begun the effort of bringing Wall Street back to the relative level of the average professional salary. Capping salaries at half a million dollars was a big blow to Wall Street, but according to some city officials it will be a bigger blow to New York.

With the federal government furious over Wall Street’s apparent disregard of the sensitivities of the average taxpayer, New York may be in the cross-hairs of a potentially hurtful decree for Wall Street.

Mayor Bloomberg and former mayor Rudy Giuliani both have claimed that the bonuses are vital to the economy of New York City. Without them, there is less spending in restaurants, stores and other businesses. They claim that New York City can be measured by the amount of money that is being spent by the Wall Street elite.

So who is right? Do we trust our financial minds to figure a way out of this or do we allow the government to spend its way out with our money?

If we are to follow the FDR route, we could potentially lift millions out of poverty and create new and better jobs for the city and the country. But what about the price tag? Congress already has stated that we will probably need a second package after this one. Additionally, will cutting salaries that are purportedly supposed to be greasing the wheels of our city’s economy not further damage already troubled industries?

During FDR’s times, the average salary on Wall Street was comparable to other industries of the time, a sharp decline from the high-flying days of the 1920s when salaries averaged 30 to 40 percent more. According to the National Bureau of Economic Research the only other time in history that this kind of wage difference existed was over the last ten years ending in 2006.

The two eras seem similar but there are other key differences between the two periods. Cutting salaries could lead, and might already be leading, to a serious brain drain in financial talent. Countries that are major financial giants like China, the United Arab Emirates and many European nations have been crossing the pond and stealing talent off of Wall Street. This could lead to a serious dearth of experienced manages in the years to come.

Another serious difference is in the amount of money that the state and city collect from Wall Street. Over one tenth of city taxes and one fifth of state taxes are from Wall Street alone. Cutting salaries will effectively eliminate that tax revenue. But can we really live in a society where financial CEOs make over 250 times more than the average worker?

Whether the future public projects in New York will turn the city around or whether it will occur through consumer spending, we need to make sure that we learn the lessons of this crisis. Salaries should be a measure of merit but cannot reach proportions that are not sustainable. We cannot afford to allow any one industry’s economic slowdown to affect a city and a nation the way Wall Street is currently.

An old adage claims that hindsight is 20/20. Listening to the pundits, politicians and academics one gets a strong feeling that hindsight, especially when it comes to the economy, is murky at best. One of the few facts that everyone agrees upon gives me hope for the days ahead. The Depression did eventually end and was followed by a generation generally referred to as “The greatest generation of Americans.” They too found their way back from the brink of disaster. I hope that our grandchildren won’t be making comparisons between themselves and us the way we compare our times to a time when a Works Progress Administration was needed.