Book review: The Bonds of Inequality: Debt and the Making of the American City

Destin Jenkins, The Bonds of Inequality: Debt and the Making of the American City, Chicago, IL: The University of Chicago Press, 2021; 320 pp.: ISBN 978-0226819983, US$25.00 (pbk)

Destin Jenkins’ new book, The Bonds of Inequality: Debt and the Making of the American City, reveals how post-war municipal debt in San Francisco structured the city’s built environment and deepened racial inequality through spatial neglect. Tracking the emergence of the bond market, as a central financial tool for providing public infrastructure and social services to residents, Jenkins shows how the infrastructural needs of residents were increasingly subordinated to a predatory network of financial officers, investors, credit rating agencies and banks. Focusing on 20th-century San Francisco, the story begins in a moment of historically low interest rates at the end of the Second World War and takes us through the economic crisis of the 1970s and the massive restructuring of the 1980s. The bond market, Jenkins argues, was foundational to the emergence of the Keynesian city and its uneven distribution of resources, or what Jenkins incisively terms the ‘infrastructural investment in whiteness’ pg. 15. Municipal debt paradoxically was the lifeblood of much-needed infrastructural development – the maintenance of the sewage system, public transportation, the improvement of schools – while also the engine that enfolded cities into parasitical relationships between borrowers and lenders, which routinely prioritised white, middle- and upper-class residents.

The Bonds of Inequality contributes to a growing body of scholarship that powerfully recentres the relationship between economic growth and racial inequality in the post-war years, particularly in the development of affordable housing, urban infrastructure and penal policies. Like Keeanga-Yamahtta Taylor’s Race for Profit (2019) and Elizabeth Hinton’s From the War on Poverty to the War on Crime (2016), The Bonds of Inequality advances the necessary work of showing how exclusionary practices, such as redlining and over-policing, are embedded within complex financial arrangements between the federal government, states and local municipalities. Moving between the national and the local, Jenkins sheds light on the vast financial networks that pull cities into a racialised regime of accumulation, growth and speculation. Through particular focus on the municipal bond market, Jenkins offers a critical study of an overlooked but key ‘shadow player’ in post-war urbanisation. Following loosely in the tradition of the New History of Capitalism’s commodity-orientated frameworks, Jenkins understands the municipal bond as a commodity and seeks to follow the life of a bond as it touches upon multiple layers of government, big banks, local developers and ultimately the everyday lives of urban residents.

The central question for Jenkins is: why did San Francisco become structurally dependent on the municipal bond market? The point of departure is the aftermath of the Second World War as interest rates on bonds dropped to an all-time low just above 1%. In San Francisco, low interest rates lured borrowers to the municipal bond market as the city desperately attempted to modernise its public infrastructure and accommodate growing populations in the post-war years. For lenders, the bond market promised safe and secure investing opportunities with pay-outs guaranteed by the state and local government. At a time of high marginal tax rates, the ability for lenders to collect tax-exempt interest income further enticed banks, wealthy individuals and institutional investors in search of tax havens and long-term investment opportunities. As the bond market expanded, post-war cities became increasingly reliant on big banks to deliver infrastructural needs to their residents.

A decade earlier, New Deal banking reforms had paved the way for the formation of a powerful public–private alliance, one that would subsequently dictate the terms of urban development in the post-war years. Here, Jenkins’ close attention to the bond market sheds new light on Depression-era banking reforms. Take the Glass-Steagall Act of 1933. While it purported to separate commercial banking from investment banking, it did not fully sever the lending relationship between the US government and commercial banks. Although commercial banks were generally disallowed from dealing in securities, the Act made an exception for certain types of government-issued bonds. Consequently, commercial banks were allowed to continue to underwrite, buy and sell municipal debt – deepening the American state’s reliance on the private sector to provide social services and basic infrastructural needs. By locating the modernisation and expansion of the bond market within the larger contours of fluctuating interest rates, Jenkins shows how the federal government played a key role in structuring the municipal debt, while also recentring the role of local investors, bond financiers, banks and credit analysts. As Jenkin argues, it is not simply a story of the failure of federal policies, but also one of rapid financial growth spurred by public and private alliances on multiple geographical levels: the city, the state and the nation.

The book is divided into three parts: ‘Rule of Experts’, ‘The Paradox of Debt’ and ‘Supremacy’. The first part accounts for the emergence of a racialised geography of debt. Jenkins details the institutionalisation of the bond market as a technocratic form of urban governance and a fraternity-like structure of bondholders that relied on exclusionary ideologies of white supremacy and misogyny. The mid-century racial welfare state was powered by inequality: it funnelled benefits to white residents, while neglecting Black and brown communities who were still asked to foot the bill through disproportionate taxation. Chapter 3, aptly titled ‘Playground’, reveals how infrastructural investment in seemingly public spaces, such as museums, parks and stadiums, was geared exclusively towards middle- and upper-class white consumption. At the same time, urban construction projects depended on an ‘intraracial cross-class’ pg.15 compact: segregated wages prioritised the white worker, while new construction projects aimed at attracting wealthy investors, executives and tourists to San Francisco’s sprawling urban playground.

The second part, ‘The Paradox of Debt’, takes a closer look at mid-century efforts at ‘urban renewal’ that sought to vacate flourishing Black neighbourhoods, like the Fillmore and Western Addition, in order to make room for large-scale redevelopment projects. Set against the backdrop of white flight, San Francisco’s urban renewal policies aimed at keeping white middle- and upper-class populations from retreating to the suburbs, while pushing Black and Chinese communities to the margins. The forced removal of Black communities from historic neighbourhoods was not lost on Black San Franciscans, and Jenkins shows how pushed-out residents forcefully articulated a ‘Black bond politics’ alongside the growing civil rights movement and newfound demands for political representation. Communities came together to vote down new bond measures and to demand reinvestment in Black neighbourhoods. At the same time, Jenkins argues that Black resistance to financial hegemony ironically became the grounds by which creditors and bankers targeted cities with downgraded credit ratings and extractive interest rates. Time and again, credit rating agencies and bankers cited Black revolt as the cause for financial penalties.

In the final part, ‘Supremacy’, the Keynesian city is eclipsed by the neoliberal city. As interest rates steadily increased, San Francisco’s shrinking bond market was plagued by reticent lenders and dependent borrowers. In the wake of the credit crunch of 1966, the relationship between borrowers and lenders became antagonistic. Structural adjustment programmes initiated large-scale retrenchment in cities across the country. The financial crisis in New York City served as a parable for indebted municipalities who consequently sought to constrain public spending. Meanwhile, in San Francisco, new demands by Black and Chinese residents for social provisions as well as a redistribution of the debt burden only added to misgivings about public spending on the part of city officials and the financial elite. By the 1980s, Reagan’s new political economy had restructured the bond market and further penalised cities that were already reeling from austerity and retrenchment.

Through careful research and incisive analysis, The Bonds of Inequality reveals how the municipal bond market is a politically constructed institution that strategically links borrowers and lenders in a project of economic growth. And growth, as Jenkins powerfully reminds readers, is not neutral. At the centre of every decision to borrow is an ethical and political question: who and what is worthy of debt? Jenkins’ sophisticated analysis unearths the tragic paradox at the heart of municipal debt: the very same financial networks that sustain the basic and everyday needs of local residents also routinely pillage and extract from the most vulnerable communities. Ultimately, Jenkins brings much-needed attention to the role of the municipal bond market in the uneven distribution of wealth and power in US cities. The Bonds of Inequality will be an invaluable resource for scholars working in the field of urban studies, especially those seeking to investigate the relationship between finance, urban geography, public infrastructure and racial inequality.

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