A Happy Tale Of Two Cities
Memo to Bill de Blasio: New York should celebrate, not denigrate, the fact that it attracts very rich and very poor people alike
New York is a magnet for people on a fast-track to be rich, and for very low-income people. What's wrong with that?
Mayoral hopeful Bill de Blasio has made "the crisis of income inequality" in New York a major theme of his campaign, arguing that "it must be at the very center of our vision for the next four years." But the city’s inequality is more a sign of its success than a crisis, and, no matter how much you hope for greater equality world-wide, it is hard to imagine a successful city-level welfare state.
New York’s inequality is extreme. Manhattan is the most unequal big county in the U.S., and the New York area is the country’s seventh most unequal metropolitan area. The Bronx and Brooklyn are more unequal than 90% of America’s more than 3,000 counties.
But this extreme inequality reflects other extraordinary aspects of New York: the massive global financial markets based here, America’s most accessible public transit system, hyper-dense immigrant communities and broad social services, like public housing. These forces attract both rich and poor to New York, and New York should not be ashamed of that economic diversity.
Rather than seeing the disparity between those at the highest and lowest income levels as a disease, we might consider it a defining feature of a remarkable city with unique assets that attract residents from a range of backgrounds.
If anyone should be cringing, it is our more "equal" suburbs � which often zone out the disadvantaged. New York should never aspire to that kind of uniformity of income.
Urban inequality is ancient; it may be the very nature of cities to house the richest of the rich and the poorest of the poor in close proximity. Plato wrote that "any city, however small, is in fact divided into two, one the city of the poor, the other of the rich." The urban juxtaposition of wealth and poverty can be jarring, but it reflects the enduring appeal of city life to both haves and have-nots.
America has too much poverty, and the country should ensure that prosperity becomes more widespread. I believe even more fervently in fighting the inequities that persist throughout the world. But local inequality is different from national inequality, because local inequality reflects the choice of where to live, made by rich and poor alike.
The bigger question, the more important one, is not how much inequality exists � but whether there is mobility for people on the lower rungs of the economic ladder.
New York has plenty of very rich people, because the city is a good place to become wealthy and a good place to spend one’s wealth. And that’s not just true for financiers and real estate millionaires.
Knowledge is the critical 21st century asset, and humans get smart from being around smart people. When young people come to Wall Street, whether they start in the mailroom or on the trading floor, they enter a maelstrom of experience that provides insights that can be the basis of future fortune.
Mayor Bloomberg’s billions come from information technology � an industry more associated with Silicon Valley than New York. But Bloomberg was able to thrive in that industry because he had run the Salomon Brothers trading floor. Unlike the software pros in Palo Alto, he knew what the traders at Merrill Lynch needed.
I hope that New York can diversity its economy away from finance � history hasn’t been kind to one industry towns � but we shouldn’t be surprised that finance loves New York. There is no other industry where a little extra insight can yield so much money so quickly. Financial professionals will pay the most for the density of downtown New York, because the knowledge that density brings is so valuable to them.
Being a magnet for aspiring, soon-to-be-rich talent in finance and many other fields is an invaluable asset for a metropolis.
And it is to New York’s credit that, even as the city attracts high-flying professionals, the city can also be a viable home for the poor.
It is critical to recognize that cities rarely make people poor. Rather, cities attract poor people, with economic opportunity, a better social safety net, and the ability to get around, usually without owning cars.
My research with UCLA economist Matthew Kahn illustrates why less prosperous people sensibly choose cities. We examined neighborhoods near the new transit stations built in various cities after 1973. Poverty rates rose near new train stations, not because the stations impoverished local residents, but because public transit was attracting the poor. We also found higher poverty rates a near bus stops in Los Angeles and subways stops in New York outside of Manhattan.
The poor make reasonable location decisions, and many of them choose New York, partially because of its abundant public transit.
The poor also choose New York because the city has been an opportunity machine for centuries.
No matter what some politicians proclaim, "rich" and "poor" are not frozen groups in New York. Work by my colleague Raj Chetty and co-authors found that a New York child in 1980 whose family was in the bottom fifth of the national income distribution had a 10% chance of ending up in the top fifth of the national income distribution by 2013.
Even in the most mobile of America’s large metropolitan areas, poor children had only a 12% chance of getting rich. By contrast, in less mobile places, like Atlanta, a poor child had only a 4% chance of ending up prosperous.
New York’s poverty � which, alongside its wealth, accounts for its economic inequality � also reflects the city’s generosity. The New York City Housing Authority provides homes for more than 400,000 people in public units and housing vouchers to another 225,000 residents. By contrast, Houston, which has one quarter of New York’s population, provides housing support for only one tenth as many residents.
If the next mayor wants to make New York City more generous to the poor � a worthy if difficult goal � he should at least recognize that this will attract more poor people to the city and may ultimately make the city more unequal.
New York’s divisions between rich and poor also reflect the city’s long-standing role as a port of entry for immigrants finding a brighter future in America. Over 36% of the city is foreign born, and immigrants generate $215 billion of annual economic activity in the city.
The city’s dense ethnic enclaves provide a halfway point between the old world and the new, where new Americans can find familiar foods and places to worship. Immigrant networks make it easier to find jobs, whether in the enclave itself or in the polyglot city outside. Many immigrants start with less, which makes it particularly valuable for them to be able to get around without having a car per adult.
So New York has been successful in attracting rich and poor alike, and that makes the city unequal. The problem that should concern candidates across the political spectrum is the missing middle � the ordinary people who move elsewhere because real estate is too expensive, taxes are too high, and schools underperform relative to many suburbs.
The next mayor should prioritize two policies that would make the city more welcoming to middle income Americans. He should promote housing affordability by reducing the regulatory barriers to building, and he should improve educational options. Housing will only become more affordable is if more housing gets built; draconian land-use regulations are the city's biggest changeable barrier to new building.
Constant competition and innovation are great urban virtues, but these advantages disappear when public monopoly replaces private entrepreneurship. Imagine how mediocre food in New York would be if it was provided by a single public canteen. But that is exactly what we’ve done for our schools. My colleague Roland Fryer has found that many New York charter schools have achieved outstanding success. Poor and middle-income New Yorkers alike would benefit from more competition in education.
Just as the causes of local inequality are different from the causes of national inequality, the policy response to local inequality must also be different. Progressives can plausibly imagine creating a far more expansive American welfare state that taxes the rich more and spends more on the poor. Many of the rich might choose to earn a little less and relax a little more, but few would flee the country. Our tough immigration restrictions would similarly restrict any vast in-migration of the international poor.
Running a generous local welfare system is far more likely to elicit large-scale migration of rich and poor. The tendency of firms and the wealthy to flee high-tax areas has been much discussed, and New York should be wary of alienating its high wage earners.
But the migration response of the poor is at least as important.
Before the welfare reform of 1996, there were significant differences in the generosity levels of the Illinois and Missouri welfare systems; these meant that living in East St. Louis received higher welfare payments than those living on the Missouri side of that metropolitan area. Should we be surprised that East St. Louis had one of America’s highest poverty rates?
Make New York City’s public sector far more generous to those at the bottom, and it will attract more poor people. Attract more poor people, and inequality will grow.
America lived through an era of idealistic mayors committed to righting injustices at the local level, and cities suffered an enormous urban exodus, especially of middle-class families. As voters turned to pragmatic manager-mayors, like New York’s Ed Koch and Washington’s Anthony Williams, their cities have gotten healthier.
I share Bill de Blasio’s passion for the less fortunate, and he is right that the mayor must represent all of New York � rich, middle-class and poor alike. But the best way for a mayor DeBlasio to care for the city is to focus on getting the basics of city government right, not to try to run an ever-larger local welfare state.
This piece originally appeared in New York Daily News
This piece originally appeared in New York Daily News