How the mighty have fallen. If that thought comes to mind in respect of Mayor Bloomberg, it’s not with any pleasure. It was only a few months ago that he was riding high, having been re-elected to a second term on an economy that was rising on President Bush’s tax cuts. A historic real estate boom was in progress. He was sketching enormous building plans and talking about making New York a capital of green-ness. He was taking to the barricades to defend New York as a financial capital. Even when we didn’t agree with him on substance — such as gun control — we admired his moxie. No wonder that we ended up not the only ones plumping for him to throw his hat in the ring for president.

Yet a few months later, with the mayor well into the last quarter of his mayoralty, things are suddenly being cast in a different light, as our Grace Rauh reports on page one today. The accession of the Democrats in the Congress, and the prospect of a Democratic president, have lead the country to expect big tax increases and a protectionist turn in the economy. So the George Bush effect is being attenuated, and the country is in fear of a recession. The collapse of the dollar has given us all a sense that things are getting less affordable, and the bloom has come off a real estate boom that appears increasingly to have been, at least in part, the reflection of a sinking dollar.

This is not a situation in which it made sense to come in with the kind of restriction on commerce that congestion pricing represented in the heart of our city. And the mayor’s predicament was exacerbated by the failure to comprehend the Democratic caucus in the Assembly. Someday a rising Ph.D. student is going to make a name for himself or herself by illuminating the Sheldon Silver story. The way in which he outmaneuvered the mayor on congestion pricing was just a classic. And we say that as an editorial page that was open to the idea when it first began to be mooted and came gradually to understand what the Assembly saw, which is that it was a tax, after all, and an impediment, a restriction on us.

What New York needs is precisely the opposite. It needs more traffic and fewer restrictions. Pray that the mayor gain from the denouement of the congestion pricing fight at least a new clarity in respect of those facts. We are at a moment in our economy when we need tax cuts, on our income, our capital gains, our property, and our automobile travel. New Yorkers are fit to be tied by the management of the Metropolitan Transportation Authority. Why in the world would they want to submit to taxing their automobile travel to give that management more money with which to work? How could the mayor have missed that basic question?

He is in a zone now in which his legacy is in the balance. We would not for a minute suggest that the story is over. But he has to be careful now that it all doesn’t turn sour. The fate of his central school reform, mayoral control, is hanging in the balance in Albany. London is bidding against us as the international financial capital, even as it prepares for an Olympiad that the mayor, as so many New Yorkers, had ardently hoped would be in New York. This is a time for him to campaign for a liberalization of our regime, a rollback of government, a welcome mat to capital, and a strengthening of a Republican Party in the city and state that will focus on first principles.