Arnold Kling  

Economics of New York City

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The prolific Edward Glaeser writes,


28 percent of Manhattan’s payroll goes to workers in a single three-digit industry. 56 percent of Manhattan’s payroll goes to workers in four three-digit industries. New York’s 20th century success primarily reflects its ability to attract and retain a single industry, and its future appears related to a continuing ability to hold that industry.

The attraction of finance and business services to New York reflects the advantages of the city in facilitating face-to-face contact and the spread of information...the primary cost involved in the movement of people is the opportunity cost of time, which rises with wages. For this reason, cities, which represent the elimination of physical distance between people, still excel in delivering services. In addition, as the demand for timely information rises, the proximity which facilitates that flow of that information continues to be critical. The success of finance and business services on the island of Manhattan hinges critically on the advantage that the island has in bringing people together and speeding the flow of knowledge.


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COMMENTS (3 to date)
Jim Glass writes:
"New York’s 20th century success primarily reflects its ability to attract and retain a single industry, and its future appears related to a continuing ability to hold that industry."

Ha! The local Democrats will soon take care of that given the chance. Their leading candidate for Mayor, Freddy Ferrer, is proposing to raise billions by putting a transaction tax on stock and bond market trades.

After all, if it's making a lot of money (especially for "rich people") then tax it! Just as if there is some reason why traders can't relocate their trading on the other side of the city line.

Of course, the Eurodollar and Eurobond markets were created in the 1960s when the US imposed such a tax on trades, causing trading to quickly relocate to Europe. The tax was swiftly lifted, but the business was lost forever.

Paul N writes:

I love Glaeser's stuff. I see the primary future forces in driving the growth/contraction of cities as 1) technology makes it easier to be farther from your colleagues, which has a city-shrinking effect vs. 2) as people get richer, they want to be closer to premium services available only in cities.

Lancelot Finn writes:

This aspect of the economics of cities helps to explain why cities are Democrat and rural and suburban areas are Republican.

In cities, the land has very high value, and the rentiers who own it absorb much of the city's production without doing any work. The high value of real estate in New York comes not from the labor that went into developing it; rather, it is an externality from the geographical concentration of an economic activity.

This makes urbanites more inclined to see wealth as unearned, undeserved, parasitic.

Also, the success of cities is clearly a result of a synergy, of economies of scale, of collective effort. This makes people more aware of interdependence and less inclined to emphasize independence.

More on this theme here.

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