Tuesday, December 15, 2015

The New York Bubble. By Via Meadia.

The New York Bubble. By Walter Russell Mead and the Staff of Via Meadia. The American Interest, December 14, 2015.

Via Meadia:

Don’t tell the Williamsburg hipsters (especially not before they’ve had their afternoon cortados), but New York City’s renewal may be coming to an end. The New York Post:
There’s a pall over the financial markets this holiday season, and it has little to do with the shortage of daylight this time of year.

The lifeblood of the street — bonuses — will be cut, and if you survive, there’s no guarantee of a better 2016.

That’s because Wall Street is bracing for merciless job losses that could total 100,000 in the US alone by June.

By this estimate, Wall Street head count in New York City — some 170,000 today — could shrink by as much as 17,000, with the downsizing hitting everyone from million-dollar backers to middle-class backoffice workers.
For the past two decades, New York City has enjoyed a remarkable run of economic growth, falling crime rates, and cultural vibrancy. The food scene has never been better, new museums (and new buildings for old ones) keep cropping up, parks are cleaner and more numerous, and, of course, there’s a nice little housing boom. Experts point to policing and reduced crimes rates to explain New York’s resurgence, but Wall Street’s success and government support of it has been equally critical.

Obama, in general, has been a great president for the rich, helping Wall Street, but not so much Main Street. Wall Street rebounded from the 2008 crash faster than most of the country, in large part thanks to bailout money from Washington. Although the banks shed plenty of jobs, they didn’t collapse the way businesses in other parts of the country did. The 2009 federal stimulus sent $9.1 billion to New York.

The result was that property values never really caved in New York like they did elsewhere. Perhaps partly for this reason, newly rich oligarchs in China and other emerging market economies saw New York real estate as a place to keep their money safe from autocratic and potentially-unstable regimes. That phenomenon has only driven home prices higher, and encouraged more construction.

Look around, however, and all the springs which have helped New York grow are drying up. Low federal interest rates were great for Wall Street over all, and thus great for New York City. Many predict that the Fed will be tightening soon, the era of easy money is over, or will be over soon. There’s no more stimulus, of course. The rush to move money to the U.S. from collapsing commodities-dependent countries can’t last forever, particularly as a strengthening dollar makes New York property even more expensive. And that strong dollar also discourages international tourism, which is the city’s second-biggest economic engine.

But it’s the slowing of the biggest engine, finance, that causes the most concern. New York City could probably survive a decline in tourism, and residents might even appreciate a cooling off of the construction boom, even if it meant the end of skyrocketing housing prices. But if Wall Street cuts jobs and salaries, the city will suffer in ways all of its residents feel.

This is particularly bad news for Mayor Bill de Blasio and his progressive agenda, which relies on ever-increasing tax revenues to fund new education and housing initiatives. Bigger, bluer government is also more expensive government. And, although New Yorkers might have trouble imagining why anyone would want to live anywhere else, we suspect they’d change their tune if taxes rose much higher—particularly as schools and subways fail to improve (to say nothing of the city’s apparent inability to house its homeless).

New York’s decline isn’t at all inevitable, or necessarily going to be particularly steep, but the winds which have blown New York so far are starting to change direction. Of course, even if the city does weather the storm, we doubt historians will credit de Blasio, the City Council, and their corrupt overlords in Albany for able steering.