September 19, 2013

That's Pretty Rich

James Surowiecki has an article in this week's New Yorker about how basically New York City will always have disgusting levels of inequality because... well, just because.

Now, I will fully admit that this kind of BS economic just-so story is a bugbear of mine, but regardless this particular version is totally infuriating — especially coming from someone who usually brings a certain level of finesse to economic analysis. Here's the worst part from his current article:
Decrying inequality on the campaign trail is one thing. Actually doing something about it is infinitely harder.

In part, this is because New York’s economy is absurdly dependent on its main driver of inequality — the finance industry. Finance accounts for roughly forty per cent of all the wages paid in Manhattan, and almost a quarter of the city’s G.D.P. (That’s not even to mention the myriad businesses — high-priced law firms, say — that service the financial hub.) Wall Street’s importance limits what a mayor can do to reduce inequality from the top down. The same is true of the city budget’s dependence on the wealthy — the top one per cent of earners pay forty-three per cent of the city’s income tax. In other words, the rich we will always have with us.
I am so freakin' tired of hearing this ridiculous "logic." Heavens no! We can't raise taxes on the rich! Then they'll just LEAVE and we'll all be lost. LOST! We can't imagine what we'd ever do without them! Just when did we become Wall Street's clingy codependent partner, anyway? (Wait, never mind.)

Here's the thing: if we called the bluff and raised taxes on the rich, or the banking industry, or whatever, you know what would happen? NOTHING. Because where are they going to go? The finance industry isn't in New York just because New York provides a cushy environment in which to do business; the finance industry is in New York because there's no other city in the country that can cater quite so well to stupid rich whims. If you want a car to pick you up at 3 a.m. and drive you to an artisanal sausage cafe on the Upper West Side where you'll be treated like royalty precisely because you have no concern for the sleeping schedule of less fortunate people, well, you can do that pretty easily in New York — but it ain't gonna fly in Cincinnati. Put another way, bankers like being rich so they can spend their money on stupid, unnecessary shit—and they don't have quite so wide a variety of stupid shit to spend money on anywhere else in the country. (Well, maybe San Francisco. But more on that in a second.)

Now, of course, the shrill Surowieckis among us will protest that if we really stop kowtowing to the rich in New York, the banking industry can always move, setting up a horrific, exploitative infrastructure somewhere else. And it's true that there are horrific, exploitative infrastructures already blossoming in other cities, San Francisco and L.A. among them. No doubt there are also people out there making similar doomsday predictions about how tech will leave San Francisco if we stop cutting them a break, and Hollywood will leave L.A., and blah blah blah.

Except the same people who make these arguments frequently turn around and tell us that a large part of what makes these industries so efficient and innovative is their geographic concentration. Surowiecki's among them:
Marshall’s basic point about why companies in the same industry congregate still holds: industrial districts enjoy the same economies of scale that only giant companies normally get. Specialized suppliers arrive. Skilled workers know where to come to ply their trade. And everyone involved benefits from the spillovers of specialized knowledge.
Or here it is in a slightly different form:
The fundamental point is that much of the value that gets created in a company comes from the ways in which workers teach and learn from each other... Face time is still the easiest way to build connections.
So on the one hand we're being told that big industries like finance and tech and film would be crazy to move, because it's precisely their concentration in one place — and the specialized networks that have built up in that place over decades — that make them so successful. On the other hand, we have the same people telling us that raising taxes will instantly frighten the rich away like startled cats. Obviously they can't both be true — and like I said, my money is on the former.

Because here's the last thing: regardless of any fancy economic theories you might believe or not believe, I'll wager that a nontrivial proportion of the rich finance types in New York are here because they saw Wall Street once and want to be like Gordon Gecko. They want to be in New York. The city has a cachet (for better or for worse) that won't go away, even if Goldman Sachs and Bank of America and Wells Fargo and Citibank do all suddenly decide to close up shop and move to the Midwest. Which they won't, because they want to be in New York for those same, silly, intangible reasons. What kind of a global bank doesn't have an office in the Big Apple, right?

So let's cut this crap. We CAN fight equality from the top down — it's real easy. And hey, if we raise taxes on the rich and they all end up leaving, you know what we'll be left with? Exactly what we wanted: less income inequality, because all those high earners will be gone. And in the meantime, we'll have used the millions of extra dollars we taxed them for, while they were still around, to make prudent plans for a future where 40% of income tax doesn't come from the megarich.

And, best of all — without all the stupid luxuries that New York bankers demand driving up the cost of living for everyone — we'll be left with a wage that goes a lot further. Sounds pretty awful, right?


Will Wilkinson said...

I don't think it's so easy. Besides the political improbability that Albany approves the hike, this is a small group of wealthy people who can adjust how and when they're compensated to largely avoid the added tax. This is more the problem than the very real possibility that some people will move to Greenwich.

Andrew said...

I actually agree that it's not *quite* that simple — but I also don't think raising taxes on the rich and big finance is the completely hopeless political nonstarter that people so often say it is. And as long as we're making slightly disingenuous oversimplifications, I'd rather go with the one that might actually lead to something changing than the one that says the status quo is inevitable.

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