I thought I should bring this snippet of information, hidden in a Wall Street Journal editorial, to your attention:
A McKinsey analysis last week estimated that 40% of workers in Los Angeles and 36% in San Francisco will lose jobs or income during the pandemic. The Southern California Association of Governments predicted the “pandemic’s economic impacts [on the region] will be severe and long lasting.†Unemployment in Southern California will average 12.2% in 2021, the outfit forecast, and sales will decline between 53% and 65% at restaurants over the next two years.
It could be worse in New York City since 15% of Manhattan residents have left, according to cell-phone data analyses. Not all will return once businesses are allowed to reopen, and some finance and tech companies say they will let more employees work remotely. New York landlords say many tenants aren’t paying rent, and they have to make mortgage and tax payments. New York City (3.9%) and Chicago (3.8%) have the nation’s highest effective commercial property tax rates after Detroit (4.2%).
Eventually there will likely be business foreclosures, evictions and bankruptcies, which will reduce property values and in turn government tax revenue. California, New York, Illinois and New Jersey make up 30% of the national economy, so their business carnage will affect farmers, meat processors, truckers, manufacturers and suppliers nationwide.
Maybe not anymore. The emphasis above is mine. 15% of the population is a quarter million people. I wonder how much total income those people represent?
I don’t know what the situation in Los Angeles is but hereabouts I have seen quite a few “For Sale” signs going up, moving vans moving households out, but no moving vans moving households in.
When the big cities raise their heads in a week, a month, or three months, what will they see? Let me remind you that this there’s a decennial census being conducted, too.
Check out the Ryder lot. I’ll bet they’re close to empty and they have to pay drivers to bring in their trucks and trailers from the growing regions.
I read an article over the weekend (likely either the LA Times or Washington Post) that the 2020 census will result in a loss of at least one and perhaps two congressional seats for both California and New York. Out migration has been a trend in California for a number of years. Without a job or business to keep them here, I suspect there will be a new waive of people fleeing the state for greener pastures.
Both Southern California and NYC have a sort of grip on their inhabitants. In LA it’s sometimes said “there is no life east of Sepulveda”. There are limits and that grip is becoming more tenuous. The 15% cited in the WSJ editorial if permanent and not merely snowbirds would be pretty serious.
Contrariwise, Chicago has no such hold which is why I thought Rahm Emanuel’s strategy for the city was so ill-founded. Chicago is not San Francisco and will not become San Francisco whatever the city does. Amenities for the “creative class” are well and good but can’t be the foundation of a vital, growing Chicago. It’s the “city of big shoulders” or nothing. Apparently, the Democratic power structure has chosen nothing.
‘Amenities for the “creative class†are well and good but can’t be the foundation of a vital, growing Chicago.’
Fully agree. And Chicago ain’t making it easy for even them. Living edgy gets old when it’s your car or your apartment that keeps getting broken into and the LEOs shrug their shoulder when you complain because an arrest might get the in trouble or even worse mess up their disparate impact statistics.
We have too many pure Eloi in this country. We need to encourage more Eloi-Morlock hybrids, makers who are also innovators. We still have plenty for now, the mostly invisible taxpayer/bourgeoisie class, but if tax and economic policy keep on discouraging them from making a living they’ll continue to disappear.
I don’t think those are the reasons. I think the reasons are regulatory policy and the financialization of the economy. Why risk capital through capital investment to develop or make more things when you can make more money by buying and selling financial instruments? Or in a sector like health care in which two of every three dollars earned comes from government?
“Why risk capital through capital investment to develop or make more things when you can make more money by buying and selling financial instruments.”
To avoid a zero sum trading game only underlying development and making things (Value creation) can create increasing value in the instruments traders are, uh, trading. That requires investment in real live intellectual and physical capital.
I’ve made far, far more money investing in real assets than financial assets (we are control investors, for those able to follow the bouncing ball). Funny thing, though, people hate me for that. Then they turn around and criticize financial instrument traders. Someone needs to come to grips with that.
Being a critic doesn’t make one rich, investment acumen does.
When they say lose jobs or income then we have no way, that I can easily think of, to compare that with other cities. The areas being hit the hardest are the restaurant trade, hotels, travel and entertainment. So places like San Francisco that dont rely so much on those (or Silicon Valley) wont be hit as hard. NYC and Los Angeles do have a lot of employment in these areas so I think that will be hurt for a long time. What I dont know is what the impact is to our country if we lose out on a bunch of Cuban/Korean fusion restaurants that are open at midnight. Sure, it is a short term loss, but long term? A few less re-runs of Lion King on Broadway will cause long term negative consequences to the economy? We have always, a lot of people anyway, lauded creative destruction and assumed that people will always find jobs in another area. What is different now?
Steve
There are many things that are different. Look at the BLS LSRs over the last decade. Month after month the sectors creating the most jobs are hospitality, retail, health care, and business services.
Large e-commerce retailers won’t create that many new jobs. They’ll just automate their warehouses more. Otherwise they can ship a lot more product with the labor they already have.
That’s exactly why I’ve been complaining about the low level of real domestic business investment for nearly the last 20 years.
I was impressed to see Dave’s familiarity with the phrase “there is no
life east of Sepulveda.†It’s such a local comment which I thought was only used by those of us living near the ocean, west of Sepulveda.
To partially answer my own question, the other thing different is the virus. Sine it is likely we dont have a vaccine or treatment for a year or so, whatever new jobs are created will be affected by people’s willingness and ability to work in an environment that still has the virus. We have established that it is risky for those over 55, over 20% of the labor force.
Steve
IMO it would be prudent to assume that there will never be an effective vaccine.
In some specialties it’s more. 30% of physicians are over 60. Since the average age of engineers is around 42, it’s reasonable to assume that a considerable proportion are over 55. Also see here.
I didnt want to sound all elitist so was being politically correct in not pointing out that if we take a targeted approach and protect older people, we would lose a lot of professionals and scientists. You can make the case that some of that might be good since it opens room for younger people, but you are going to have trouble making up for 30%-40% of the labor market in those areas. Someone who claims they want to have a targeted approach to isolation needs to explain how it will work and also maintain a functioning economy.
Steve