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New York Daily News

 

How the 'Two Cities' Story Is a Distortion

February 13, 2014

By Scott Winship

We can have inquality and mobility at the same time

In his State of the City speech and budget address this week, Mayor de Blasio repeated his "tale of two cities."

The premise of his tale is that New York has unprecedented inequality that "fundamentally threatens our future." Almost half of New Yorkers live in poverty or in near poverty. "Our middle class," de Blasio asserts, is "at risk of disappearing altogether," and "the ladder up to the good life (is) stretching farther and farther out of reach."

This is a compelling story, with a timeless villain whose defeat, de Blasio assures us, will spell victory for the broad majority of city residents. But the mayor’s tale is a deeply problematic misdiagnosis of our economic challenges.

Let me counter de Blasio’s tale with two of my own. The first starts in 1979, the year before the 1980 recession. In that year, the top 1% of tax filers in New York took home 12% of the city’s income, according to the Fiscal Policy Institute. By 2007, another peak in the business cycle, that fraction had spiked to 44%.

These figures, however, overstate income concentration and its increase over time. Taxes and transfers redistribute income, but they are not included in the estimates. Capital gains from the sale of assets are not included if they do not show up on tax returns, as is the case for most middle-class filers who sell a home. When they are reported on tax returns, capital gains that have accrued over many years are counted all at once as having been received the year an asset is sold.

Despite the rise in inequality, the "99%" saw broad improvement over that time. Contrary to the mayor’s assertion that gains at the top have come at the expense of everyone else, New York’s unemployment rate averaged just 4.9% in 2007 — way below 1979’s 8.7%. Median household income in the city rose by 50% — $16,000 in today’s dollars — after accounting for the rising cost of living. The tale since 2007, on the other hand, has been far less cheerful. Unemployment averaged 9.2% in 2012 in New York City. Median income fell by 4% between 2007 and 2012.

The silver lining, if it can be called that, is that the share of income going to the top 1% is lower today than it was in 2007. The entry point to the top 1% fell by 25% between 2007 and 2009, or by $175,000 in today’s dollars. The average income within the top 1% fell by $1.8 million, or a stunning 43%.

Which of these two cities — the New York of rising inequality but improving fortunes from 1979 to 2007, or the one of falling inequality but declining fortunes since 2007 — seems more attractive?

De Blasio has an admirable concern with poverty and with upward mobility. But like President Obama, he is using a crudely populist frame to connect the problems of the poor and middle class with the gains of the affluent. Not only is he incorrectly alleging a link, but he is also exaggerating the real problems of poverty and mobility.

Half of New Yorkers are at or "near the poverty line" only if that means having income as much as 50% higher than the city’s unofficial threshold for poverty — itself one-third higher than the official Census Bureau poverty line.

Measured correctly, poverty rates are probably no worse than they were in 1979, despite the fact that New York’s economic dynamism has attracted a growing number of poor immigrants from around the world. And intergenerational mobility in the New York region has risen; parental income has become less strongly tied to young adults’ college enrollment at age 19 and less tied to their income at age 26.

If robust economic growth returns to New York City, middle-class incomes will continue to rise as the city continues to attract eager immigrants, making trends in the poverty rate a misleading indicator of progress. And, yes, the top 1% is likely to continue doing very well. But as we saw in the 1990s, no one is likely to begrudge them their success in that case.

Alienating business and finance while scaring the poor and middle class, on the other hand, risks making New York’s tale one without a happy ending.

Original Source: http://www.nydailynews.com/opinion/cities-story-distortion-article-1.1612124

 

 
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