New York is paying a price for Wall Street’s economic domination.
Do you remember when New York City was cursed? The first wave of the Covid-19 pandemic hit her like a sledgehammer, killing more than 20,000 New Yorkers in just a few months. And many commentators claimed that New York’s lifestyle was what made it so vulnerable — in particular, its extremely high population density and reliance on mass transit.
In the end, however, this was all wrong. New York suffered a lot early on because it’s still the main US gateway to the world, so it got infected first, at a time when we didn’t know much about how to protect ourselves from the coronavirus. Since then, the city has done quite well on the health front.
But it didn’t do so well on the economic front. And from there comes a story that is relevant not only to New York, but to the #blue United States [liberais] in general.
On the pandemic: During the delta wave, the combination of high vaccination rates with widespread use of masks and public health precautions — you can’t do much in the Big Apple without showing your vaccination card — helped make the city one of safest places in the country, suffering a much lower Covid death rate than rural counties or sprawling, car-dependent cities like Dallas. The omnic wave also hit New York first, but it appears to be receding fast.
And skyrocketing rents, which appear to be more or less returning to pre-pandemic levels, suggest that New York is once again considered an interesting place to live. Sorry, I couldn’t resist quoting the investment manager who declared, “The main problem with moving to Florida is that you have to live in Florida.”
Indeed, New York is a great place to live—if you can afford the price of housing. This last point, however, is a problem, and is behind the city’s slow economic recovery.
The entire US suffered massive job losses in the first few months of the pandemic. Losses in New York, however, were much higher in percentage terms than the national average, and while the national economy recovered, New York’s did not regain lost ground.
What’s behind this underperformance? Some of it reflects the effects of the pandemic on tourism and business travel — Times Square was starting to be intolerable again (usually no one goes there because it’s too crowded) before the omicron arrived. But the biggest issue, I would say, is the city’s lack of economic diversity.
It seems strange to say this about a city that is incredibly diverse in so many ways — including the people’s jobs. But a city’s economic fortunes are largely driven by its “export base”—the things it produces that are sold elsewhere.
This base usually has a large “multiplier”; much of the money earned at the base is spent locally, supporting restaurants, shops, gyms and others. But the base is what guides the growth of the city.
And New York’s base is remarkably narrow for a city of its size. As Ed Glaeser of Harvard University has pointed out, in economic terms the city is basically a monoculture: it sells financial services to the rest of the world, not much else.
Examining just the employment numbers can be misleading: Only about 8% of New York workers are in the finance and insurance industry. But their incomes are so high compared to everyone else’s that they account for about 20% of the city’s economy and most of its export base.
And the problem with having a single-sector economy is that bad things happen if something shakes that industry. Think coal in West Virginia or cars in Flint, Michigan.
The strange thing about New York’s troubles is that in some ways the city’s export base is holding up well; the Wall Street people are not disbanding en masse. But what Wall Street has stopped doing, at least for now, is going to the office — because finance turns out to be one of those industries where a lot of work can be done remotely. This, in turn, means that financial workers are not buying lunch, shopping in town, going out to eat, and so on. The problem, in other words, is less a shrunken base than a reduced multiplier.
But why has New York lost its economic diversity? The answer, of course, is that the immense purchasing power of Wall Street and those who serve it has collided with a housing stock limited by zoning and regulation, making the city too expensive for everyone except financiers and those who directly or indirectly indirectly meet their needs. And the solution is obvious: to allow the construction of more houses.
Which brings me to the question of what’s wrong with blue America [liberaç] —New York is just one example (California is worse). Conservatives will tell you that people are moving to Texas and Florida for the lowest taxes; taxes in New York are indeed high, but there is not much evidence that they are driving people away. What people are really doing is moving to places where housing is affordable, because their governments don’t stop new construction.
And in the case of New York, this is ultimately why a major global city has become a one-industry city, leaving it unusually vulnerable to the economic dislocations caused by the pandemic.
Translated by Luiz Roberto M. Gonçalves
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