Why the next recession is set to truly slam New York

The last time the American economy crashed, Gotham powered through it. We didn’t see the massive teacher and police layoffs and service cuts other cities saw. But if the national economy falters again, this time could be different. For Mayor Bill de Blasio, the problem may not be a recession, but a long recovery that leaves the city short of cash — and scrimping on the public services that keep people here.

Don’t look now, but the global economy is in a rout. Manufacturers in China have cut their production for two months running now, indicating not just slow growth but the possibility of recession. What happens in China matters to everyone. Caterpillar, a big construction equipment company that relies on China for 10 percent of its revenues, said last month it would lay off 10,000 well-paid people, half of them in America.

You may have stopped caring about the stock market years ago, but it’s down 10 percent since early summer. American companies aren’t just worried about less selling to China. They’re also worried that other countries that have depended on China — like Brazil and Australia, which have sold it fuel and metal for manufacturing — are headed for prolonged slumps, too. That means low profits, and (more) lost jobs.

And since overseas firms borrowed from American banks and investors in dollars and will have trouble paying that money back, financial firms may face trouble, too. Even without a debt crisis, banks will suffer just from losing business: A brand-new investment bank saw its stock drop 12 percent on its first day of trading last week.

None of this means it’s 2008 — but even if the world escapes that kind of catastrophe, New York might fare just as poorly, or worse, under a slow crisis instead of a fast one.

First, we just can’t expect the Wall Street bailouts we got from the feds last time, including the zero-percent interest rates we still have today. (You can’t borrow for zero percent, but the bank can.)

Even the Washington technocrats who always think the answer is lower interest rates are starting to see real harm in keeping rates so low. Because people around the world cannot make any profit in investing in a “safe” bond, they have poured their money into increasingly risky assets — to such an extent that we really have no idea how much anything is worth.

Even if the global economy sinks, the Federal Reserve, which sets interest rates, knows that it can’t do much more of this. Remember, back in 2008, our problem was too much debt — but now American companies, governments and people owe $6.4 trillion more in debt to global bondholders than the $33.1 trillion they owed back then. This is not good.

And no bailout means a bigger slump for Wall Street than it saw after 2008. By 2009, Wall Street’s profits, if not jobs, were again at record levels in New York.

Yet with financial firms still paying 30 percent of all wages people earn in New York City, what would happen to our city budget if Wall Street had a long slump? Nothing good.

The other problem for New York is that much of this Wall Street money has poured into our other high-paying industry: tech. The professional services and information fields in New York, which include tech jobs, have hired more than 100,000 mostly well-paid folk, more than making up for continued job losses in finance. Well-paid tech folk, in turn, have parties and spend money, buoying the rest of the city’s economy.

But is Airbnb really worth $25 billion? Who knows — but these “sharing” economy firms don’t make profits, and they need investment to keep coming so they can keep paying their workers.

And the tech industry, too, could face something it hasn’t faced in 15 years: a downturn. That’s especially true because it’s so focused on consumers: If spending falls, Facebook ads and black-car rides are worth less, and so are the investments in that industry.

New York could weather some parts of a recession. We could use a hit to our real estate prices. But our public services, from police to subways, are so expensive that we need a bubble to keep them going.

The MTA alone needs $3.2 billion from the city just over the next five years — money that is supposed to come from budget surpluses that may not materialize. What we can’t weather is unsafe streets and broken-down subways.

This piece originally appeared in New York Post