Arnold Kling  

The Outlook for New York, Continued

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The New York Times reports,


The storm damage had a synergy of its own. Efforts to pump floodwaters from subway and automobile tunnels were slowed by electrical shortages. Hastily arranged car pools became bogged down on highways and city streets clogged with other commuters. Many gas stations, without power to operate their pumps, could not open for business, eerily evoking the fuel crisis of the 1970s.

This is consistent with what I wrote in a post that most people disagreed with, and which may yet prove to be mostly wrong.

But I worry that people have sunk too deeply into folk Keynesianism, in which economic activity consists of jobs and spending. Spending creates jobs, and jobs create spending. So let's send everybody back into the city to work and spend. Instead, I would be inclined to shut down the hair salons and the boutiques for a few days longer in order to clear the roads to bring in generators and repair workers. And I would not want the additional logistical challenges of holding the NYC marathon. I keep thinking that there is probably some 70-year-old couple trapped on the 10th floor somewhere without electricity or running water, and perhaps city personnel should be dealing with them rather than with setting up water stations and barricades for a race. But maybe that's why Bloomberg is mayor of New York and I'm not.

I think of the economy as a system for collaboration over long distance. I taunt locavores by saying, "why stop with buying only from farmers in the community? Why don't you refuse to buy anything that was not manufactured and made from materials that can be found within a one-block radius of where you live?"

I occasionally fantasize about what I would have done differently on the Allied side during World War II. Instead of trying to bomb cities and factories, I would have tried to take out the main transportation conduits, particularly railroad bridges and highway bridges. I would also have gone after electrical transmission stations, fuel pipelines, and the water distribution system.

Forget about whether my fantasy strategy would have been feasible. The point here is that the storm executed that strategy in New York. It took out key transportation arteries, electrical transmission, and it disrupted the fuel and water system. To me, the economic consequences of that look much worse than the destruction of the World Trade Center (although more people died in that attack).

Maybe it will all get fixed more quickly than I first assumed. I hope so. But I stand by the point that if you think of the economy as a system of collaboration, then the conduits that facilitate collaboration are vital. Losing subway tunnels and electricity is a big deal. And, as the paragraph quoted above illustrates and as I wrote in the other post, the patterns of interdependence make for a compounding effect.


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CATEGORIES: Supply-side Economics



COMMENTS (26 to date)
Shane L writes:

Fascinating thoughts, and it's great to see Arnold writing here again.

Regarding a comparison with the September 11 attacks, I wonder if the different mood matters. After 9/11 there was horror, anger, disbelief and confusion about the future threat level to the US and the world. My economics is not strong enough to know what all that panic and excitement might have done to the economy. This time around, though, I haven't seen similar fear and confusion.

How much do perceptions matter?

Arnold Kling writes:

Shane,

I don't see myself as "back," but I do seem to have an outlier point of view that is based on economics, so I cannot resist writing about it.

My experience with power outages (sadly, I have a lot of such experience) is that they are fun for about 24 hours, and tolerable for another 36 hours or so, but as the days wear on, it gets old.

If the lights don't come on by Monday, my guess is that the folks in lower Manhattan are going to be in a less-than-positive frame of mind.

Shane L writes:

Good point. Proximity to the elections may have muted the kind of political finger-pointing that might otherwise go on. Perhaps if conditions are still frustratingly far from normal after the elections then the mood could tank.

Charlie writes:

Arnold,

I like that you are following logical predictions of PSST and in some sense giving the theory a natural experiment.

Can we nail down some specific predictions? First to see how much disagreement there is between you and commenters and second to make evaluation easier ex post.

Would you predict?

Total employment will be lower in New York in one year. [perhaps controlling for national avg chg]

Total income will be lower in 1 year.

Total population will be lower in one year.

The number of commuters on public transportation will be lower in one year.

Maybe there are more/better predictions we can write down. I picked one year arbitrarily, because the argument is that the effects are long-lasting and possibly permanent. Maybe sorting into short and long-run predictions to see if most of the disagreement is on the "this will be harder to fix than you think" and "this will have negative effects on the city permanently."

N. writes:

> If the lights don't come on by Monday, my guess
> is that the folks in lower Manhattan are going
> to be in a less-than-positive frame of mind.

Absolutely agree. In fact, given that I had expected most New Yorkers to be pleasantly surprised that there was any interboro transportation at all, I have been shocked by the poor behavior of what I am forced to conclude is a /majority/ of the people I have come in contact with today (and if you've seen the pictures of the morning commute, you may know just how many people I may have been in contact with). Yes, New Yorkers have a reputation for being rude, crude and generally selfish and self-centered, but in times of crisis (or celebration), we come together. From what I've seen today -- not so much.

I continue to stand by my initial prediction of a "normal" sense in NYC by Monday morning. But I have a creeping sense of dread that I most certainly didn't have yesterday. If this is how folks act with a minor citywide crisis (and yes, I think this constitutes only a minor crisis, considering the number of people who *do* still have power and plumbing), I hate to think of what a major crisis would look like. The people on the street gave the city government 24 hours to get things running perfectly again -- OR ELSE. If that isn't a frightening lack of self-sufficiency coupled with a terrifying sense of entitlement, I don't know what is.

I have a few other comments, but I will save them for the Henderson post above. I do have one more thing to say, though: Arnold, based on the news story excerpt above we have entered into something akin to the 'discovery' phase of your PSST theory; established patterns and routines have collapsed, and we need to find a new way of doing things. I think we will, and in short order. I think it is unfair to criticize initial responses to these conditions for being ineffective, because they are, by necessity, based on massively imperfect information. If, by Monday, the city is still on the skids, then you can strap on the hob-nailed boots with impunity.

Charlie writes:

I don't like that I used quotes in that last sentence, since those are my words and not yours. I just wanted to separate two arguments that you were making in my reading of your post.

Roxy writes:

The storm made landfall less than 72 hours ago. Of course there are huge challenges and it will take a while. Does anybody dispute that?

You made one specific prediction in the prior post: "In order to remain ongoing concerns, many financial services firms will 'temporarily' relocate to suburban offices and to virtual offices. These 'temporary' adaptations will become so well entrenched that many of these businesses will not return to Manhattan."

I will go out on a limb and predict that this will happen to exactly zero of the major (say, top 10 by total assets) financial firms with U.S. headquarters in NYC.

I would also guess, contrary to your prior post, that there are professionals at MTA who "understand the inner workings" of the subway system, given that this system seems to have been operating reasonably well for quite some time. Yes, you heard me right: competent municipal employees!

Arnold Kling writes:

See this article, which explains

Although transit officials haven't estimated the time it may take to fully recover, their own models suggest that it could take weeks to restore the flooded system to complete functionality. Millions of moving parts in each train and tunnel may be corroded by saltwater; each will have to be taken apart, cleaned, dried, reassembled and tested before the system can hope to run again.
N. writes:

In response to that, I can only quote to you The Hymn of Breaking Strain and wait patiently for an announcement from Hizzoner.

Mercer writes:

Ed Glaeser's book and the ebooks of Matt Yglesias and Ryan Avent all make a powerful case for the economic benefits of dense cities. They also document that because of zoning it would would be almost impossible to build another place as dense as Manhattan in America today. Where would the businesses go to if they left New York if they want a similar environment?

nazgulnarsil writes:

The broken window fallacy journalism has already begun. A quick scan of news this morning found multiple articles with that central thesis. Depressing.

mike shupp writes:

Memory says the Allies did start to focus bombing on raillroads and the like in German-held areas in the latter stages of WW II, with sort of effectiveness that you would have hoped for.

Why did it take so long? Lack of theory, I suspect, and unwarranted faith in the accuracy of aerial bombing. It just seemed so obvious that hitting a high-priority target like a factory was more important than tearing up a couple of miles of railroad track... until it turned out hitting factories from 20,000 feet was about as easy as threading needles from that distance. Later on ... the Allies had hopes of using those same roads and rail tracks themselves, which argued against indiscriminate attacks.

Not to argue against the subject of your post.

Good to see you here again!

Q writes:

N, what did you see in your morning commute? I took a bus from jay street Brooklyn to midtown with no problems whatsoever around 8 am. Same for the way home - I waited in a line of several hundred people piling on shuttle buses and everyone was settled and fine. I am not saying there were no issues anywhere but I commuted today and didn't see them.

I imagine after electricity comes back on in lower manhattan we will see a lot of mess.

Arnold don't forget that there are two subway lines that go over bridges and that the queensboro bridge lines are already running. Sure we may not be at 100 pct soon but 75 pct is foreseeable soon.

OneEyedMan writes:

There is something of a literature on this matter:

The strategic bombing of German cities during World War II and its impact on city growth by Steven Brakman, Harry Garretsen and Marc Schramm

We construct a unique data set in order to analyse whether or not a large temporary shock has an impact on city growth. Following recent work by Davis and Weinstein on Japan, we take the strategic bombing of German cities during World War II as an example of such a shock, and analyse its impact on post-war German city growth. If the war shock has only a temporary impact, then there will be a tendency towards mean reversion. Our main finding is that the bombing had a significant but temporary impact on post-war city growth in Germany as a whole as well as in West Germany separately, but that this is not the case for city growth in East Germany.

Bones, Bombs and Break Points: The Geography of Economic Activity by Davis and Weinstein

We consider the distribution of economic activity within a country in light of three leading theories - increasing returns, random growth, and locational fundamentals. To do so, we examine the distribution of regional population in Japan from the Stone Age to the modern era. We also consider the Allied bombing of Japanese cities in WWII as a shock to relative city sizes. Our results support a hybrid theory in which locational fundamentals establish the spatial pattern of relative regional densities, but increasing returns may help to determine the degree of spatial differentiation. One implication of these results is that even large temporary shocks to urban areas have no long-run impact on city size.

I read this as evidence against any lasting consequence to Hurricane Sandy.

Ken B writes:
I occasionally fantasize about what I would have done differently on the Allied side during World War II. Instead of trying to bomb cities and factories, I would have tried to take out the main transportation conduits, particularly railroad bridges and highway bridges. I would also have gone after electrical transmission stations, fuel pipelines, and the water distribution system.
This is interesting. A bit of historical context. The British essentially gave up on precision bombing early on, finding it impossible and dangerous. They opted for night time balnket bombing. This was of course controversial. The Brits did do some precison bombing of exactly the sort Arnold imagines. Mostly this was 617 squadron. There was the raid on the Ruhr dams, which was unrepeatable, but also later precision raids on bridges.

The US opted for precision daylight bombing (not exclusively but mostly) from the start. Planners reasoned that immobile factories, such as those for ball-bearings, were better targets. For one thing you need to take out a lot of the railroad system at one time to seriously overload the rest of it. Plus switching yards were in populated areas.

For D-Day the planners decided a switch to bridges and railroads would be effective. The Germans would need to reposition huge numbers in a short period. The "rail plan" was indeed very effective at that time, but with a very high cost in French civilian casualties.

N. writes:

Q,

I showed up at Hewes around 6:45am to a seething mass of humanity and no buses, no cops and one lone MTA guy trying to wrangle everyone and keep them relatively calm. Buses did show up, one at a time, and confusion between which bus went all the way to Midtown and which bus took passengers only as far as over the bridge caused a lot of pushing and shoving to get in/out. Once we were finally underway, the traffic crept along so slowly people started yelling at the driver, who wasn't having any of it. Once we finally got on the bridge you would think that people would breathe a sigh of relief, but instead passengers were barely keeping their rage in check. It was the kind of tension right before a fight. Nothing ultimately happened, and I'm sure everyone was tired and cranky, but I had expected a much different attitude on the first day of interboro transportation post-storm.

It could have been much better this morning, I don't know. I left an hour earlier and was grabbed by a car that needed an additional body to meet the three-person-per-car requirement to cross the bridge. Getting back home will likely be a good deal more complicated.

daubery writes:

I know this is supposed to be linked to your PSST ideas somehow, but I don't see any unique predictions here. Everyone agrees that transport infrastructure being broken is bad because people can't get to places as easily. What does PSST predict beyond that? You seem to be saying it predicts that transport infrastructure is really difficult and slow to rebuild or something, but I don't believe that is 1. true or 2. predicted by PSST.

Surely following the PSST framework, the storm is just an exogeneous disruption of patterns of specialisation and trade that are already known to be sustainable. There's no paradigm shift - we just need to pump a lot of water out of a hole or whatever as quickly as possible, and that's just an engineering question.

If anything the fact that we know there's a lot of unrealised value going to waste because the transport links are broken is going to increase the amount of money and effort going toward fixing everything and will get it done faster. That also seems like a really trivial prediciton, but it is at least connected to PSST in some way (and is in the opposite direction to the doom-and-gloom).

Am I missing something?

melee writes:

Bridges and rail rolling stock were significant targets in WWII, the former from high altitude and the latter by fighters returning from escort missions (once aircraft like the P-51 were available that had appropriate range).

Bridges, being relatively small, were tough to destroy with the technology of the time, but were still common targets. They were often found to be disappointingly easy for the enemy to repair or replace. (And bridges considered potential avenues for invasion were intentionally left standing.) Destruction of rolling stock (esp. locomotives) by fighters was a major problem for Axis supply lines.

Rail lines themselves were not common targets, as they are hard to hit and very easy to repair. Rail yards (being much larger, and also concentrating rolling stock) were targeted.

Pipelines and petroleum infrastructure were also major targets, and this caused significant problems, though those effects took a while to manifest. In the end scores of German tanks and other vehicles were abandoned due to lack of fuel (both due to lack of supply and logistics problems.)

The electrical system was not targeted, because wartime intelligence suggested that the German system was flexible enough to route around damage. There was considerable debate about this, and probably attacking power generation and switching would have been a very good idea, as both are expensive and lengthy repairs. Chaff caused quite a few problems on both sides of the channel, however.

Water distribution, being mostly a "civilian" target, was not commonly attacked--though several dams were destroyed.

Factories were considered good targets since they are time- and resource-intensive to repair, and there are a reasonably small number of them. Or, at least, that's the idea. The ball bearing industry was an especially good target, it being a cornerstone industry--but attacks were not intense enough to entirely shut it down. Factories proved also to be surprisingly hard to destroy, as they could be hardened (sandbags around machinery), dispersed, disguised, and repaired with reasonably rapidity.

One of the lessons of WWII's strategic bombing is that there's an awful lot of nodes in an economy, and it's really hard to take out enough to shut the whole network down. It's even very hard to take out a whole sector (rail, ball bearings, oil) when specifically concentrating on it, because there's usually quite a lot of spare capacity and/or redundancy, and because the network becomes even more resilient when under attack (due to expedient repairs, hardening, decentralization, etc). Which is not to say strategic bombing didn't work. It did make things much harder, and degraded German capacity in almost all areas--but only with costly and continued attack.

In many ways, a hurricane causes worse problems than a bombing campaign, as it hits many systems all at once. But the most critical components, roads and power, usually come back quickly, and that helps everything else get back to normal.

The ultimate effects of a hurricane really depends on the extent of damage not to utilities but to real estate. In many ways Galveston never recovered from 1900 (almost everything there was destroyed) and New Orleans is still recovering from Katrina. But Houston, which was almost entirely without power for a week following Ike, showed almost no signs after a few months. Losing utilities is annoying, but a mere blip.

New York, I suspect, will barely notice after a few months, too. A city not going to work for a few days, or even a few weeks, is hardly a disaster. (It happens to the whole country of France for months each year!) If a few subway lines take a month to reopen, well, there are other ways to get around. Coastal mid-New Jersey will be different--though from what I've seen, probably better than many Gulf Coast coastal hurricane hits.

Arnold Kling writes:

Interesting comments. Let me focus on PSST. Obviously, the storm disrupts patterns for a week. Will it disrupt them longer?

For the economy as a whole, I agree that the answer is "no." Activities will continue to be done. The question is whether they will be done on the island of Manhattan. The hypothesis that I am putting out there is that a year from now a noticeable amount of the activities that took place on Manhattan before the storm will be taking place elsewhere. My reasoning:

1. There are always firms that are on the margin where they are thinking about whether to relocate or how much to allow telecommuting.

2. Those decisions will go in one direction for the next couple of years--the interest in relocating to Manhattan will go down and the interest in relocating from Manhattan will go up. The use of telecommuting will go way up.

So, I do think that the regional economy will adapt. The question is what proportion of the adaptation will involve moving economic activity off of Manhattan. I think it could be substantial. Clearly, if commuting from New Jersey to New York becomes 90 percent as efficient as it was before the storm by the tend of the year, then the adaptation will be far less drastic than I anticipate.

Jim Glass writes:

Submitted via power from an emergency generator in NY:

If the lights don't come on by Monday, my guess is that the folks in lower Manhattan are going to be in a less-than-positive frame of mind.

Hey, that's *me* you are talking about, 16th St., Chelsea, Manhattan. Say that to my face! :-)

Actually I'm in a worse situation than that. My family is on 16th St., I'm in the burbs looking after my mother, where power is expected to be out for another 10 days and it is beginning to get really cold at night. I'm posting this from a shelter where I've been helping take seniors.

I occasionally fantasize about what I would have done differently on the Allied side during World War II. Instead of trying to bomb cities and factories, I would have tried to take out the main transportation conduits, particularly railroad bridges and highway bridges. I would also have gone after electrical transmission stations, fuel pipelines, and the water distribution system.

They did exactly that as soon as they could. The reason why they bombed cities in the start was just because cities were the only targets big enough for them to hit. The early British raids were lucky to hit the right country, literally -- raids aimed at France often hit Holland and Belgium.

Once the USAAC had control of the skies for daylight bombing so they could see the target, plus radio directed location fixing and targeting skills improved enough so they could actually hit what they saw, they went right to Raiload Campaign and Oil Campaign, with devastating effect. Although German war production in total still continued up near all the way through it, there is remarkable resiliance in an economy.

Forget about whether my fantasy strategy would have been feasible. The point here is that the storm executed that strategy in New York.

No, it isn't. Nothing like it.

It took out key transportation arteries, electrical transmission, and it disrupted the fuel and water system.

Which are all very fixable, very simply and directly, with time measured in a few days and effort valued in readily affordable dollars.

The point of the USAAC Railroad and Oil Campaigns was that they kept hitting the same targets day-after-day, relentlessly, so the targets could never be fixed and the Reich utterly bankrupted its resources in the attempt.

I was very cold here without power. I went on Amazon.com and with *one day delivery* -- the roads and bridges into NY have not been bombed out -- obtained a very nice kerosene heater that has me nice and toasty. The Germans couldn't do that! Power is promised back tomorrow.

I stand by the point that if you think of the economy as a system of collaboration, then the conduits that facilitate collaboration are vital.

Of course. But you are also relying upon an implicit belief that if damaged they cannot be fixed. That the same forces that drove their creation somenow cannot drive their restoration. That simple tasks like fixing power lines can't be done. Where does that come from?

I wrote in the other post, the patterns of interdependence make for a compounding effect.

They also have a reinforcing effect. Society is a web. This strand depends on that strand, true, but when that strand breaks many other strands also support this one. Unless the USAAC is relentlessly destroying them all.

I would think that would be the free-market, libertarian belief.

Instead, I detect an Austrian prejudice that "roundabout production processes" somehow are narrow, rigid and inflexible, so if they break for some reason society is doomed. *And* that "non-roundabout processes" -- there's nothing "roundabout" about fixing power lines and draining tunnels -- are the same. Where this prejudice comes from I don't know.

Where I am writing from there are within my sight construction crews from Colorado and Mississippi reparing on the power lines. That shows remarkable flexibility and regenerative resources, does it not?? (Not available to the Germans in 1944.)

I keep thinking that there is probably some 70-year-old couple trapped on the 10th floor somewhere without electricity or running water, and perhaps city personnel should be dealing with them rather than with setting up water stations and barricades for a race.

And this is the typical left-wing prejudice justifying big govt: Somewhere somebody is in an unhappy circumstance and being ignored by free people going about their happy business, so government is needed to restrict and take from the free to help whomever that somebody is, real or not.

An odd prejudice to combine with libertarian sympathies.

This is consistent with what I wrote in a post that most people disagreed with, and which may yet prove to be mostly wrong.

Quantify your belief into a measurable claim and lets consider a bet. As a NYCer who lives in blacked out lower Manhattan, I'll consider taking the other side.

Mark Bahner writes:
I occasionally fantasize about what I would have done differently on the Allied side during World War II. Instead of trying to bomb cities and factories,I would have tried to take out the main transportation conduits, particularly railroad bridges and highway bridges. I would also have gone after electrical transmission stations, fuel pipelines, and the water distribution system.

I know what I would have done. I would offered a reward of $500 million, or $5 million per person (whichever was less) plus asylum in the United States for those people and all their immediate relatives, for the assassination of Adolph Hitler. And $50 million (or $500,000 per person, whichever was less) for the assassination of Himmler, $50 million for the assassination of Goring, and $20 million for the assassination of Goebbels.

A further condition would be that the rewards would only be payable for assassinations prior to German surrender.

ed writes:

Most New York Subway service returns. After 4 days.

http://www.marketwatch.com/story/most-new-york-subway-service-resumes-2012-11-03-111034518?link=MW_latest_news

guthrie writes:

@Jim,

As someone affiliated with a major small-engine company, I'm hoping you're keeping an eye on the oil level of your generator! :) Here's hoping the power comes back on for you, soon...

Roxy writes:

Ed beat me to it. NYC subway service 80% restored as of today. All trains expected to be operating within a few days. No word yet of Citigroup decamping to the suburbs.

I've always liked Arnold's blogging but these two posts were not up to his usual standards. As I commented on the prior post, this appears to have been a classic "hedgehog" prediction fail.

To borrow a phrase from Delong (forgive me), will any beliefs be marked to market?

Roxy writes:

I think of this post and the prior one every time I see a story like this: "New York Subway Repairs Border 'on the Edge of Magic'"

Apparently somebody at MTA actually understood "the labyrinthine thicket of wires that you see underground" which to Arnold "have always provided a sense of lurking danger." It appears that his surmise that "anyone who ever understood its inner workings has long since departed" may have been, er, slightly off.

Still bemused that Tyler Cowen cited Arnold's predictions here as "very important." Important how exactly?

Mark Bahner writes:

Hi,

On Arnold's firt post I predicted more than 60 percent of pre-storm ridership by November 10. Does anyone know if that prediction came true? It sounds like it did, but there doesn't seem to be any exact ridership information anywhere.

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