Remember when New York was doomed? The first wave of the Covid-19 pandemic hit the city like a hammer, killing more than 20,000 New Yorkers within months. And many commentators have argued that it’s New York’s way of life — particularly its exceptionally high population density and reliance on public transportation — that makes it so vulnerable.
In the end, however, this was all wrong. New York suffered a lot in the beginning because it’s still America’s main gateway to the world, so it was heavily infected first, at a time when we didn’t know much about how to protect us from coronavirus. Since then, the city has done quite well on the health front.
However, it has not done so well on the economic front. And so snags a tale that’s relevant not just to New York, but to blue America in general.
About the pandemic: During the Delta wave, the combination of high vaccination rates, widespread mask-wearing, and public health precautions — there’s not much you can do indoors in the Big Apple without showing your vaccination card — helped make New York one of the safest places in America, suffering from a far lower Covid-related death rate than rural counties or sprawling car-dependent cities like Dallas. The Omicron wave also hit New York first, but appears to be receding rapidly.
And flying away rental rates, which appear to be more or less back to their pre-pandemic levels, suggest that New York is once again seen as an attractive place to live. Sorry, but I can’t help quoting the investment manager who said, “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 cost of housing. This last point, however, is a problem, and it is the root of the city’s slow economic recovery.
All of America suffered severe job losses in the early months of the pandemic. New York’s job losses, however, were much larger in percentage terms than the national average, and as the national economy recovered, New York failed to make up lost ground.
What is behind this underperformance? Some of them reflect the effects of the pandemic on tourism and business travel – Times Square was just starting to get intolerable again (normally nobody goes there because it’s too crowded) before Omicron does not strike. But the biggest problem, I would say, is New York’s lack of economic diversity.
It might seem like a strange thing to say about a city that’s incredibly diverse in so many ways, including the jobs people do. But a city’s economic fortunes largely depend on 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 the engine of the city’s growth.
And New York’s base is remarkably narrow for a city of its size. As Harvard’s Ed Glaeser 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 the employment numbers can be misleading: only about 8% of workers in New York are employed in finance and insurance. But their incomes are so high compared to everyone else that they make up around 20% of the city’s economy and most of its export base.
And the problem with a single-industry economy is that bad things happen if something undermines that industry. Think coal in West Virginia or cars in Flint, Michigan.
What’s odd about New York’s problems is that in some ways the city’s export base has held up well; Wall Streeters are not decamping en masse. But what Wall Street has stopped doing, for now at least, is to go to the office — because finance happens to be one of those industries where a lot of work can be done remotely. This in turn means that financial workers don’t buy lunch, shop downtown, go out to eat, etc. The problem, in other words, is less a shrinking base than a shrinking multiplier.
But why has New York lost its economic diversity? Surely the answer is that the immense buying power of Wall Street and those who serve it has clashed with a housing stock constrained by zoning and regulations, making the city too expensive for everyone but financiers. and those who, directly or indirectly, take care of their needs. And the solution is obvious: allow the construction of more housing.
Which brings me to the question of what’s wrong with blue America – with New York just one example (California is worse). Conservatives will tell you that people move to Texas and Florida for low taxes; but while New York’s taxes are indeed high, there’s not much evidence that they keep high-income residents away. What people are really doing is moving to places where housing is affordable, because governments aren’t blocking new construction.
And in the case of New York, NIMBYism is ultimately the reason a major global city has become a one-industry city, leaving it exceptionally vulnerable to the economic upheavals wrought by the pandemic.