Profile in Courage: George Gould

At a time of 8 percent inflation and a $30 trillion debt, fiscal responsibility may seem like a relic of the distant past. In reality, all levels of governments experienced plenty of problems getting taxpayer revenues to match profligate spending even before the rise of trillion-dollar deficits. New York City suffered significant financial issues in the 1970s, teetering on the brink of bankruptcy after famously being denied federal aid.  But, thanks to the efforts of larger-than-life investment banker George Gould, New York City lived to see another day. Gould also took his talents to the federal government, arguing forcefully for industry-led bailouts rather than taxpayer-led “rescues.” Gould is no longer with us, having passed away this past month at the age of 94. He will always be remembered as a Profile in Courage and a champion of courageous principles that policymakers should follow.

Gould began his long and impressive career by building his wealth and reputation on Wall Street. He played a critical role in expanding the investment bank Donaldson, Lufkin & Jenrette and founding the firm’s investment management division. This branch of business quickly quadrupled in annual revenue in just three years’ time, a testament to Gould’s knack for managing resources and building valuable connections. This growth helped people from Wall Street to Main Street build their own wealth.

Gould’s real test wouldn’t be in the boardroom of a major company, but rather from a much larger entity. New York City had accumulated a massive debt of more than $10 billion and private creditors and the federal government were reluctant to come to its aid. There were many contributors to this fiscal malaise, including the city’s chronic underfunding of pensions, officials’ inability to confront municipal labor officials, and taxpayer flight. Mayor Abraham Beame was running out of options, but the executive knew of a guy capable of rising to the challenge. As the possibility of default loomed in 1975, Beame called Gould at 1 a.m. to beg him to join the Municipal Assistance Corporation (created for fiscal oversight). He agreed and went on to serve as a member of “Big M.A.C.” for the next four years.

Former M.A.C. executive director and chairman Eugene J. Keilin recalls, “George was, even then, a kind of senior statesman, knowledgeable about the bond markets, and a Republican when we needed credibility with Rockefeller Republicans…” Keilin’s point about politics was no small issue. New York City’s fiscal crisis was a sharply partisan issue, and it was important for Republicans and Democrats to work together to achieve fiscal solvency.

Gould’s steadied, bipartisan approach worked wonders.

The federal government agreed to provide limited temporary aid to New York, but only if the city made major reforms including keeping wage growth and worker rolls under control. M.A.C. also issued bonds to help tide the city over and encouraged private-sector players to invest in them and (at times) accept less interest than they were used to. The idea was that the city could draw on temporary resources not forcibly from taxpayers, but voluntarily from bankers who had a vested interest in sound municipal management.  The plan was a success thanks in large part to Gould.

After the tide was turned in New York, Gould set his sights on the federal government. President Reagan’s Treasury Secretary James A. Baker III tapped Gould to serve as undersecretary for domestic finance, an important position amid rising federal red ink. Gould faced the second major test of his career when the stock market crashed in 1987 and market liquidity dried up virtually overnight. Even as voices in the Treasury and on Capitol Hill called for an immediate taxpayer bailout, Gould resisted those calls and tried his best to organize a private-sector, bank-led bailout of troubled financial institutions.

While this ultimately did not pan out, Gould was one of the few public statesmen to stand up for taxpayers and fight fiscal irresponsibility. If policymakers had gone the way of Gould in recent years, the national debt would be far less than $30 trillion. Courage may not be cheap, but it is exactly what is needed to get runaway debts under control.  Policymakers must strive for the Gould Standard by resisting runaway spending.