How Healthy Is New York City's Economy?

Is the economic recovery too dependent on banking, and is it benefiting only the well-off

New York is not experiencing recovery. Rather, it’s biding its time during a suspension of reality, courtesy of Congress, the Federal Reserve, and Presidents Obama and Bush. But a day of reckoning delayed is not a day of reckoning avoided. The trillions of dollars with which Washington has blanketed our city aren’t doing us any favors. They’re only suffocating our capacity to create a healthy economy.

It’s no surprise that Manhattan, in particular, is doing well. Going on two years, Washington’s bipartisan economic policy has been to drown our hometown financial industry in easy money. In 2008, federal programs such as the $700 billion Troubled Asset Relief Plan (TARP) and other extraordinary bailouts, including the rescues of A.I.G. and Citigroup, allowed large financial firms to escape failure. Since then, the Federal Reserve’s zero-percent interest rates have allowed financial firms to borrow cheaply and push asset prices up, taking in record profits.

Last year, New York’s securities industry earned $61 billion in profits -- $17 billion more than it made in 2004, 2005, and 2006 combined. That news should make New Yorkers queasy. The last thing that New York needs right now is a bigger financial sector that is even more confident in its ability to insulate itself from reality.

Wall Street instead needs to shrink as a share of the city’s economy. In 1996, at the beginning of the tech boom, financial-industry jobs accounted for one quarter of New York’s private-sector wages. By 2007, they were a full third. From 2000 to 2007, the city’s tax revenues grew by 45 percent above inflation. New York grew accustomed to spending every dime of this easy money. In four years’ time, absent another bubble, New York will spend $4.8 billion more than it takes in annually – a permanent deficit representing more than 10 percent of revenues.

Because Wall Street remains propped up thanks to federal taxpayers and savers, New York is avoiding the question that the rest of the nation has had to confront: how do we live within our means? In New York, that entails addressing our projected public-sector benefits bills, which are just as fantastical as 2005-era home prices.

The city must ask and answer the tough questions before Washington runs out of ways to delay our reality. Otherwise, New York will have no option, when the time comes, but to hike taxes sharply while slashing vital public services like police, parks and libraries. These actions would drive away the middle-class citizens we need to keep the economy healthy and growing.

This piece originally appeared in The New York Times

This piece originally appeared in The New York Times