Ed Driscoll

What Would New York Look Like with a Smaller Financial Sector?

Pleasing the Occupoopers will not please the rest of New York, Megan McArdle writes. “In a very real way, I think you can credit the financial industry for New York’s revival:”

Oh, one can point to all the vibrant creative arts and their near-cousins in advertising and publishing; one can sing paeans to the city’s energy, its tremendous diversity, its nearly unmatched food culture.  But let those of us who lived there in the 1970s and the 1980s also recall that it was violent, crime ridden, and oh yes, depopulating.  (Between 1950 and 1980 the city lost more than 10% of its population). Its infrastructure was decaying, particularly the subway, and no one who had alternatives rode the subways after rush hour.  In the early 1970s, the city flirted with bankruptcy; after the 1977 blackout, it endured widespread looting that bordered on riots.

What turned this around was not the creative class, who were still flocking to rent-controlled apartments in the safer parts of town.  No, what made the difference was money.  Money bought peace among the city’s various interest groups, repaired infrastructure that had been neglected for decades, and paid for more police.  It created jobs in construction and services and almost everything else you can imagine.  And where did that money come from?  Deregulation, and a 17-year bull market that inflated Wall Street salaries, and tax revenues right along with them.  Without the financial renaissance, these days New York might well look a lot more like Detroit or St. Louis.

So it’s interesting to contemplate what it will look like, if the financial industry gets shrunk down to the size that many are hoping.  The last time that happened, in the 1930s-1960s, New York had a lot of other businesses: shipping, manufacturing, and for that matter, being the corporate headquarters for so many national businesses.  That’s pretty much ended.  New York is now a specialist city: creative industries, finance, and tourism.

Could the creatives pay the bills if Wall Street stopped?  New York’s bills are very hefty; about one in three people in the city (and one in five in the state) are on Medicaid, with the city paying half of that; the MTA has an operating budget of over $11 billion a year; and the city’s annual pension bill runs about $7 billion.  New York’s generous social services are what nearly bankrupted the city in the 1970s, until they finally found an industry that would just pay hefty taxes instead of moving south and west.

Back at the start of 2005, Daniel Henninger wrote in the Wall Street Journal that “the creative class,” as McArdle refers to them, longed for epic horror of the grungy New York of the Death Wish/Taxi Driver era. (But with more bike lanes, in addition to even more ’70s-style graffiti presumably.) And they may very well get their wish. Between overzealous regulation, high operating fees, and the swarming and hateful Occumutants, why should Wall Street stick around, when it’s increasingly easy to decamp to friendly territory?

Megan adds, “Post-Guiliani, New York has been a very good place to be rich, a very good place to be poor, and a very difficult place to be in between.” That’s been the formula for most every Blue Area, from New Jersey to California. She adds, “If the financial industry really did slim down to size, that might well reverse,” which would be a mixed blessing for the city:

But it would be very difficult for a more middle class city to support New York City’s cost structure.  Since it would be pretty hard to rip out the subways and bridges, and it’s illegal to renege on your pension promises, I suspect that the welfare state would take most of the burden.  But not quietly.

Well, that’s something to look forward to. (Or look back to: just break out the DVDs of the first season of Law & Order, or the aforementioned Death Wish and Taxi Driver for a sneak preview if New York decides to go back to the future.)