This crisis is the first time that I fully realized, emotionally, that I am no longer a New Yorker. The city of my birth is in crisis, and I am far away, surrounded by people whose company can't go out of business.
But my father was down this weekend, and over breakfast this morning he pointed out that New York City may be in big trouble. The anchor of New York's financial community is the independent investment banks that are all headquartered there. If their corporate center of gravity starts shifting towards Charlotte and London, will other firms begin to question whether it makes sense to pay $50 per square foot just for the privilege of being in Manhattan?
That would crush New York's renaissance like a bug. All of New York's rebound has been paid for by the taxes on the financial industry--a few hundred thousand people in the industry pay the lion's share of the taxes for the entire city. Take them away, and the city will rapidly lurch back towards bankruptcy.
Of course, that's not the sort of thing that happens overnight. But the City and State of New York are remarkably business-unfriendly places; they usually end up ranked at the very bottom of the league tables in terms of the ease of doing business there. That isn't just taxes, though that's part of it, but the massive, overgrown regulatory apparatus that can be perilous and expensive to negotiate. New York can afford to have things like a gold-plated Medicaid program, laws that tilt negotiations overwhelming in favor of public service unions during negotiations, and an outrageously expensive workman's comp system. The financial system just throws off so much money--and it's very good at dealing with regulators.
If the Golden Goose goes away, downstate may start looking like upstate. Western New York is trapped in a downward economic spiral where the affluent leave, and the needy, who are now a higher percentage of the electorate, vote themselves even more programs, the burden of which chases out still more affluent people, and the businesses that employ them.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
surrounded by people whose company can't go out of business
--
I kinda wish it would though, somedays, like April 15.
I'm not so sure that municipal bankruptcy would be such a bad thing. It might be what the city needs in order to face economic reality and change its drunken-sailor spending way. Medicaid has got to be cut, massively, and the public sector employees need to have their lavish benefits brought back to earth.
In addition to making the rich pay more taxes, "we" need to forbid them from moving from the jurisdiction where they are taxed (or face confiscation of all their assets if they do move.)
Same with the businesses they own or who employ workers. If America is no longer a serious country, then we should just get on with dismantling the system that made it the most prosperous and free country on earth.
Last I read, folks in my biz (law) were paying over $100/sq ft in Manhattan.
It would be good for everyone -- including New Yorkers -- if power, prestige, and money flowed away from New York City to places south and west of Manhattan. I enjoy NYC on visits and don't wish for it to "drop dead" the way Gerald Ford wished in the 1970's, but I do wish that NYC would put a sock in it once in a while -- and I doubt I'm alone in feeling that way. If Charlotte or somewhere comparable became the U.S. banking hub instead of NYC that would be just too delicious for words.
... I am no longer a New Yorker
You will always be a New Yorker. No matter how you fantasize and wish fulfill, in the end you will realize there is no escape.
Pet peeve (not as bad as "troll"):
The point of the fable is that the lion's share is all of a thing, not just most of it.
Interesting musings, but I would rate the risk of the financial industry leaving new york at approximately, and forgive me here because this is just back of the envelope calculation, zero.
Companies go where the talent is, and where the exchanges are, etc. And where the media is. There's a reason NY is the finance, media, and advertising capital of the country. They all need each other.
In other news - a barrel of North Sea Brent Crude is now trading at $88.80 down $3.15.
The times they move quickly....
jmo,
Damned speculators shorting oil! Where is Joe Lieberman?
I think it's only fitting that NYC gets to lead the nation into third-world status.
The elite power brokers and political anointed of this country have worked long and hard for this result, as much through neglect as active choice. We have a country that basically doesn't make things any more, just pushes paper around and sells each other extended product warranties on stuff made somewhere else and brought in in shipping containers. Modern electronic telecommunications makes having a physically centralized financial center totally unnecessary. Those guys could all be outsourced to a bunch of prefabs in India or Malaysia.
This is the evolutionary result for all organisms that over-specialize. Conditions change, and they can't adapt fast enough.
The great tech bust drove a rationalization of IT and IT outsourcing. The survivors have since grown to fulfill their previous promise.
I think we will see a similar effect from this finance industry bust. I've always thought that the financial industry had unsustainably-high levels of compensation, making it a prime target for educated professionals in lower-cost areas.
All of this commentary overlooks the idea citizens and business are inter-related. Ms McArdle's anti-government bias ignores the idea that a stable regulatory mechanism can create a more secure business environment, which is preferred by certain types of businesses. Higher barriers to market entry can also have positive outcomes. Are social signals not important? New York offers a lot of talented people per square mile. As a practical matter, access to a large pool of talent is certainly attractive, and perhaps it benefits certain businesses to pay for that access.
In any case, "business" in New York is made up of people who live in New York. Policies that benefit people living in New York ultimately benefit the businesses as well. People who don't want to live in New York can exit, and many do. There are, however, many people who want to live there, and many of those same people make business decisions. Those business people also transition into governing (i.e., Bloomberg).
I don't have data for Charlotte, but London certainly isn't much cheaper than NYC.
If the location of a business were based on the pure calculation of tax liability and regulatory burdens, all business would be in the process of relocating to Alaska to take advantage of its 6.4% state tax rate.
We all know it doesn't work that way.
If anything, New York must recognize that physical security is more of a retention issue than taxes and regulation, as we have unfortunately seen since 9/11. However, if businesses relied purely on bottom-line calculation of profits vs. taxes and regulatory costs, then the geography of business should be the opposite of what it is today. Clearly, NYC will have to make some adjustments to its budget, but I highly doubt that too many businesses will simply flee, because they can't take all the people with them.
In a previous post, MM says "though the State of New York, for some reason that I cannot fathom, is apparently prepared to let AIG take out a $20 billion loan from its New York subsidiary."
But this is exactly the reason she cannot fathom. The State of New York is worried that Manhattan will turn into Buffalo, and is trying to stop it.
I agree wholeheartedly with Lucas Bittick above. NYC attracts the best and brightest (to work not only on Wall Street but on Madison Avenue and for every major media company and on Broadway, etc.) and the companies that base their operations there do so to have access to those people. I've never been to Charlotte but I have been to, and have lived in, several other major American cities and I always find myself back in NYC. It is very difficult to find the variety of, well, just about everything that you find in NYC anywhere else in the world, let alone the United States.
We have a country that basically doesn't make things any more, just pushes paper around...
Untrue. The value added by American manufacturing is at or near an all time high, and in fact the US has the world's largest manufacturing sector, or is a very close second behind China.
What is true, fortunately, is that it takes a lot fewer workers than once upon a time to create this manufacturing value.
Scott, the question is: how do the folks who now own those investment banks feel? And how long will you stay if there are no jobs in your line of work?
Two questions:
1) If investment banks were to decamp New York for Charlotte what's to guarantee that the bankers would move to Charlotte as well? Seems to me most people who work in finance in New York like living in New York because it's, well, New York.
2) What guarantee is there that Charlotte does not become as expensive as New York. (Charlotte politician: "Oh, wow, there are all these bankers here now earning several million dollars a year. We should tax them a lot so that lazy public school teachers can continue to be lazy!")
(Yes I loathe public education and take any opportunity to malign it, but insert your favorite public "servant" in the above and you have the same argument.)
What Ms. McArdle said. My wife works for Merrill, but BofA has someone doing the same job in Charlotte, so she is likely to lose her job. At which point, the fact that we personally like living in New York City won't be very relevant. If we have to take early retirement, we won't be able to afford to live in New York City. And if the performance artists, indie rockers, etc. think that they can keep the City going without the money generated by the lawyers and investment bankers, they are seriously deluded.
Quite honestly, I don't know what we are going to do.
If investment banks were to decamp New York for Charlotte what's to guarantee that the bankers would move to Charlotte as well?
If the guy who signs the paychecks wants them to go there, that's where they'll go. I speak from personal knowledge -- these are people who will ditch a two-week vacation on the second day because the boss needs them to come back and work. Fundamentally, I-bankers are people who are so obsessed with money and the associated external validation that they'll spend 80 hours a week doing X (for any value of X) as long as there's a buck in it.
For some reason it brings to mind one the best lines in the movie Wall Street, from Hal Holbrook: "The bad thing about money, Bud -- it makes you do things you don't want to do." Including moving to Charlotte.
I agree wholeheartedly with Lucas Bittick above. NYC attracts the best and brightest (to work not only on Wall Street but on Madison Avenue and for every major media company and on Broadway, etc.) and the companies that base their operations there do so to have access to those people.
But a big part of the reason New York (still) attracts (many of) the best and the brightest is that there are a lot of employment opportunities there for them. It isn't likely to stay that way forever. In fact, New York has long been in relative decline economically and creatively as other cities and other parts of the country have grown. The technology sector has relatively little presence in New York. The major centers of economic innovation today are in places like Silicon Valley, not Madison Avenue. New York has become too dependent on the financial services industry to sustain its economy and now things are starting to really unravel.
I'd actually truly love it if NYC dropped dead for good this time. California is rapidly on its way, chasing every business that can to Nevada and Arizona. Soon the trust-fund commies and the public sector commies will have no other to attack.
We need a constitutional amendment banning progressive income taxes, basic personal deductions, and refundable tax credits. Everyone should be paying the exact same rate of tax to prevent the wolves voting the sheep for dinner. Preferably, everyone (from birth) would have to pay the exact same amount of taxes (with arrears compounding at prime) and voting only allowed for those who were fully up to date. $3,000 would be a good rate that would get the government about $600B (allowing for non payments). That would be just enough to fund the courts and DoD.
To paraphrase what has been said of Canada, when NYC catches cold, NJ gets pneumonia. The Garden State is already on the ropes fiscally. Absent the tax revenue from the investment bankers (aka, "millionaires" in recent NJ tax lingo) it can only get worse.
And our ex-investment banker governor will have a tough time engineering his way out of this.
It would be awesome if NYC "dropped dead" financially.
I know this because it did, in the late 70's, and the middle class moved out. And then there was all this beautiful, built city that was cheap, cheap, cheap and wow did it ever become a playground. Studio 54, Andy Warhol's factories, CBGBs, Soho as an artist community -- all possible because the city was broke and empty and anyone who wanted could move into its vacated real estate.
Not gonna happen this time, alas. Now everyone thinks NYC real estate is valuable, and everyone thinks art is something everyone should know about, and every corporate executive wants his glassy condo so he can eat at cool restaurants and go out and see European artists.
The city will get worse. But those of us who came here for the culture didn't come to collect a paycheck, or to apply for government benefits. All we needed was cheap rent and the Scene.
now gone forever, probably, to make life safe for the family types we all fled from.
"In addition to making the rich pay more taxes, "we" need to forbid them from moving from the jurisdiction where they are taxed (or face confiscation of all their assets if they do move.)"
New York already tried this, twice. Once, establishing a residency requirement for people on the way in, due to some overly generous welfare policies. Once, trying to tax people on their pensions, IRAs, and 401Ks on the way out, because they earned it in New York so of course New York deserved a cut, forever.
The Supreme Court was not amused. Slavery is dead, the draft is no more, and you will not decide where I live.
Good luck. May you live the life you deserve.
All of New York's rebound has been paid for by the taxes on the financial industry--a few hundred thousand people in the industry pay the lion's share of the taxes for the entire city. Take them away, and the city will rapidly lurch back towards bankruptcy.
Slight correction / argument. New York's rebound has been paid largely by the salaries of Wall Street employees and the taxes THEY pay. When I was at Lehman, I had a base salary of $81K, but about 45% went to four governments (NY, NJ, NYC, and the IRS).
It turns out that Lehman and all the other big Wall Street players were getting tax breaks as well as avoiding taxes altogether. Wall Street might be the most-regulated industry in the USA, but it tax enforcement has always been lax. And the big boys always threatened to move the NYSE to New Jersey so that NYC could continue to give tax breaks.
After 9/11, the City offered Lehman the chance to lease some floors in one of its downtown office buildings. I understand that Lehman wanted to pay roughly 25% market value on the grounds that without its bankers buying condos in Manhattan, the city would go under. The city didn't blink and Lehman was forced to buy Morgan Stanley's new skyscraper at 745 7th Avenue, for $750 Million cash. It was still a bargain. The building is worth over $1B now.
Cannot wait for the New York of 70s and 80s. I hope more and more "financial institutions" go bankrupt so these money manipulator i.e. scumbags leave this great city.
We're better off without these leeches.
I've been working in Charlotte, and lived in the area for decades. The only serious problem with Charlotte is all the New Yorkers moving into town. ;-)
But seriously, still much more affordable, and likely to remain so for some time. Reasonably nice houses in reasonably nice suburbs - with, say, 1500 to 2000 square feet on 1/4 acre - typically run from $150K to $200K. All the outsiders moving in have considerably raised house prices from what they used to be, but still much more affordable than other places.
There's a growing music and arts scene, and the beginnings of a public transportation system. Plenty of countryside on all sides for the city to expand into. The locals are pretty much pro-business, but like I said, a lot of New Yorkers (and Californians, etc.) moving in, some of whom have not yet figured out that their home states went sour because of their actions.
Plus, of course, there's me, except that I'm hoping to be at the South Pole again, most of next year. Certainly I'm worth moving to Charlotte for, right?
Goldman Sachs had a mini revolt because traders refused to go across the river to jersey city! you think those people are going to move to Charlotte?
You're from Manhattan. And while it's good that crime's way down the turning of our home borough into a giant, over-priced mall (your "renaissance") has in many ways been a disaster. The age of the million dollar studio apartment and all that culture entails has been -- well, if not tragic, certainly sad.
Surely, you can remember a time when all the people you knew who actually could afford to live (and raise a family) in Manhattan weren't rich and/or working in finance.
y81's comment "And if the performance artists, indie rockers, etc. think that they can keep the City going without the money generated by the lawyers and investment bankers, they are seriously deluded." is dead wrong, ignorant and (to use a variant on his word) delusional.
The indie rock NYC's famous for (Velvet Underground, NY Dolls, Ramones, Blondie, Talking Heads, etc.) all thrived before youth, bohemians, artists, middle-class and working class people and families were totally priced out of Manhattan. As did Charlie Parker and the bebop of 52nd street in the post-war era or the stride piano of the Harlem Renaissance decades. (A real cultural "renaissance", by the way. Not just a bunch of twenty-four-year-olds in khaki pants spending money and talking on cellphones.)
Music, painting, theatre, acting, writing, and journalism all reached historical peaks in New York in the 20th century -- this without anywhere near the level of Wall Street piggery or premience.
Frankly, you couldn't be more wrong, y81.
True, the situation for Brooklyn and Queens since the eighties has been different. But it's been a very mixed blessing -- and I'd argue real net negative -- for Manhattan.
I know I can only dream of a world where major financial institutions moved their people to Charlotte (give my love to poster Rufus! Try not to think too poorly us back North and our snooty, affected ways!) and I could afford to live decently with a family in the borough where I was born.
Get beyond the libertarian talking points (e.g. a flood of money is invariably good for everyone!) and surely McArdle must see that the changes wrought by big bucks to Manhattan have not been an unqualified plus.
For one thing, many of the natives weren't able to enjoy them. They were priced out. This was sad for them and, yeah, sad for the borough that benefited from their presence.
Then there were all the people from outside who might've moved to city and contributed too. Contributed something other than, you know, tax revenue.
Then there was what it became.
New York City's future is likely to be like Cleveland or Detroit or Philly. When the rich leave, the pressure for law enforcement, and good government rather than corrupt machine politics eases. You get clowns like Dennis Kucinich or Kwame Fitzpatrick or Philly's mayors.
Money = power, and having lots of rich people who own real estate means you won't have a city falling into the kind of crime wave that characterized NYC during the "Taxi Driver" era. They live there too, and won't tolerate the value of their real estate investments going into the dumps. No matter how many "cool people" live in crime ridden tenements or decrepit apartments.
There is no special magic NYC has -- good people can be found anywhere, for cheap. I-bankers need smart not credentialed people -- heck they could move to Singapore in a global financial market. Same for other financial services, including trading, which are moving to London because transaction costs are lower because of onerous "paper pushing" Sarbanes-Oxley regs (which did nothing to abate the current crisis).
New York City is going to be like New Orleans -- a port and that's it. Historic buildings and a corrupt machine political structure.