It appears as if the United States government will just barely avoid defaulting on October 17. It's not the first time that the date featured in fiscal history. Thirty-eight years ago, on October 17, 1975, New York City almost went bankrupt. Then, as now, conservatives in the White House pushed a style of brinksmanship that could have forced a major government to default.

The context, of course, was very different. New York City’s finances were under stress as the city tried to maintain its extensive local welfare state, despite the pressures of the recession of the early 1970s and the underlying economic problems it faced of industrial decline and middle-class flight. The city tried to borrow to cover a widening budget gap, but by 1975 the major banks refused to market its debt. New York’s mayor and governor—Abraham Beame and Hugh Carey—appealed repeatedly to Washington, D.C. Pointing to ailing corporations which had been able to obtain government funds, they argued that New Yorkers should not be made to suffer for problems that were the result of economic forces beyond the city’s control.

President Gerald Ford and his advisers (who included Donald Rumsfeld and Alan Greenspan) insisted that the city’s problems were its own responsibility. New York’s default, they claimed, would not have a significant economic impact. “There is no short cut to fiscal responsibility,” Greenspan, then chairman of the Council of Economic Advisors, wrote in one memo....