There’s a line in the musical Gypsy that remains with me. Maybe it’s Ethel Merman’s delivery. “New York is the center of New York!” I was reminded of that line when I read Paul Krugman’s most recent New York Times column, the thesis of which appears to be that New York is a “company town”, much as Detroit was a company town (maybe still is for all I know) 60 years ago, and the company is Wall Street, meaning the financial industry:
All of America suffered steep job losses in the early months of the pandemic. New York City’s job losses, however, were much bigger in percentage terms than the national average, and as the national economy has recovered New York hasn’t made up the lost ground.
What’s behind this underperformance? Some of it reflects the effects of the pandemic on tourism and business travel — Times Square was just starting to become intolerable again (normally nobody goes there because it’s too crowded) before Omicron hit. But the larger issue, I’d argue, is New York’s lack of economic diversity.
That may seem a strange thing to say about a city that is incredibly diverse in so many ways — including the jobs people have. But a city’s economic fortunes are largely driven by its “export base” — the things it produces that are sold elsewhere. This base normally has a large “multiplier”: Much of the money earned in the base is spent locally, supporting restaurants, shops, gyms and more. But the base is what drives the city’s growth.
And New York’s base is remarkably narrow for a city its size. As Harvard’s Ed Glaeser has pointed out, in economic terms the city is pretty much a monoculture: It sells financial services to the rest of the world and not much else.
Just looking at employment numbers can be misleading: Only about 8 percent of New York’s workers are employed in finance and insurance. But their incomes are so high compared with everyone else’s that they account for about 20 percent of the city’s economy and most of its export base.
And the trouble with having a one-industry economy is that bad things happen if something undermines that industry. Think of coal in West Virginia or cars in Flint, Mich.
The odd thing about New York’s troubles is that in some ways the city’s export base has been holding up fine; Wall Streeters aren’t decamping en masse. But what Wall Street has stopped doing, for now at least, is going to the office — because finance turns out to be one of those industries in which a lot of work can be done remotely. This in turn means that financial workers aren’t buying lunch, shopping downtown, going out to eat and so on. The problem, in other words, is less a shrinking base than a reduced multiplier.
But why has New York lost its economic diversity? The answer, surely, 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, cater to their needs. And the solution is obvious: Allow more housing to be built.
I suspect he’s exaggerating New York’s dependence for employment on the financial sector and underestimating the effect that the pandemic had on other industries that employ people in New York, e.g. the garment industry. But that’s not the point of this post.
I want to consider this point from early in his column:
New York suffered badly at the beginning because it’s still America’s leading gateway to the world, so it got heavily infected first, at a time when we didn’t know much about how to protect ourselves from the coronavirus.
I would never deny that New York is a “gateway to the world” for the U. S. but I don’t believe it’s uniquely so. How would you go about quantifying that?
One way would be be tallying the number of international routes for cities. New York provides 127 international routes, the most of any U. S. city but not dramatically so. Miami provides 112 and Toronto provides even more. If Dr. Krugman’s hypothesis is correct, wouldn’t you expect Toronto and Miami to rival New York in suffering badly? That wasn’t the case so I think you’d need to add some other factor.
I propose factoring in population density. New York (28,211) dwarfs both Toronto (11,226) and Miami (12,047) in that respect. I think you also need to factor climate in but that’s another subject.
If my hypothesis is correct, following Dr. Krugman’s advice (build more housing), would not be a successful strategy. It would merely expose the city to additional risk.
I don’t honestly believe that the metaphoric dust of COVID-19 will ever really settle but I also don’t believe that it will loom as important in the future as it has for the last two years. However, when we do reach that much hoped for point, I don’t believe that the megacity hypothesis will hold as much lustre as it has for some over the last couple of decades. I think that for lots of people WFH is here to stay.
Returning to my original point, there are other ways of reckoning America’s leading gateway to the world. For example, I would not be a bit surprised if the Seattle or San Francisco metro areas had more interactions per day between their respective residents and companies and people all over the world than New York does. “Gateway” ain’t what it used to be.