Sunday, August 21, 2011

Triumph of the Rentier City?

I am teaching a senior honors seminar this fall.  Among the readings is Ed Glaeser's new book, TheTriumph of the City.  It is a perfect book for smart undergraduates--it is well written, thoughtful, and thought-provoking.  It is also packed with fun facts.

Early on in the book, Ed celebrates the resiliency of Manhattan, noting that "[b]etween 2009 and 2010, as the American economy largely stagnated, wages in Manhattan increased by 11.9 percent, more than any large county."

This passage brought to mind Vernon Henderson's pioneering work on large cities and favoritism.  He writes:

This enhanced role of government in the urbanization process over the years has resulted in a corresponding bias, where certain regions and cities are heavily favored in terms of capital and fiscal allocations, giving favored regions a cost advantage. 
New York is wonderful, but it has been given an enormous cost advantage in the aftermath of the financial crisis.  It's institutions received cheap capital in the form of TARP; a near zero Federal Funds Rate also amounts to a large subsidy for financial institutions.  Banks can currently make profits just by playing the yield curve.  These profits have helped restore Wall Street bonuses (and hence incomes of everyone else in Manhattan), but that doesn't mean they reflect productive activity.

I don't want to make too much of this: TARP was necessary, and the low Federal Funds rate is necessary too.  New York is a great and resilient city.  But it is also home to many too big to fail institutions, and thus has political and financial advantages that, say, Chicago and San Francisco lack.


Acad Ronin said...

Plus the Federal individual income tax code favors urban areas over rural through the the tax deduction for state and local taxes, mortgage interest, cap on social security taxes.

Richard Green said...

David Albouy shows that the tax code and government expenditures actually favor rural areas. But NYC got a pretty big stimulus in 2008.

Acad Ronin said...

Thanks. Good to know, and somewhat surprising. Would undoing the things I mentioned then skew the code towards the cities? I will have to look into this.

Jacoblrishly said...

Residential absolute acreage sales in about all Districts were little afflicted from the endure Beige Book. Activity belted up in the Richmond, Atlanta, and Minneapolis Districts.

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