Today President Obama gives a speech on financial re-regulation in New York City—a.k.a., the city he and Congress are out to hurt with financial re-regulation. Okay, I exaggerate. Although as my colleague Michael Scherer pointed out yesterday, if financial reform is done right, Wall Street banks will see profits decline, at least in the short term, and that will mean less money for the Big Apple.
As a proud resident of Gotham, let me step up to say: I can live with that.
Naturally, all of us here don’t feel that way. Last week, I saw Robert Lieber, New York City’s deputy mayor for economic development, speak on a panel at a meeting of the Regional Plan Association (RPA). He echoed the many comments of mayor Michael Bloomberg about why financial reform would be bad for the city.
If, for example, derivatives trades are made transparent by a centralized clearinghouse, then there will be less profit in the system for traders to harness. If finance firms make less money, then they’ll have to pay their employees less—which will directly impact city coffers. In a good year, more than 10% of city revenues come from taxes on Wall Street-related compensation and corporate earnings. Less money for Wall Street isn’t just about trendy restaurants and luxury condo towers taking a hit. It’s also about the city not being able to hire as many police officers and teachers.
That’s the argument anyway. I’d like to make another one. Maybe New York City shouldn’t be so dependent on such an alcoholic boyfriend of an industry. When times are good, they’re really good. But when times are bad, we all get smacked around and the economy goes kaboom. As the city’s Independent Budget Office recently pointed out, financial re-regulation may crimp the profitability of financial firms, but it may also leave a less volatile industry at the city’s core.
And it’s not just that high finance is so volatile—it’s also incredibly inequitable. According to the New York State Comptroller, in 2008, Wall Street accounted for 24% of all wages paid to New York City workers, yet just 5% of the jobs. Is it great that the city gets to collect taxes on those wages? Sure. Would it be nicer if workers got to share in a bigger slice of the city’s economic output in the first place? Arguably it would. I understand that rich bankers with gobs of disposable income create jobs for lots of busboys and parking-garage attendants. I guess I can just picture a municipal economy that’s based a little less on the trickle-down theory.
Now, I do think it’s valid to argue that one of New York City’s key business clusters is financial services, and that a city needs to protect its clusters because clusters boost efficiency and help to attract more jobs. At that RPA panel discussion, some people made the case that Midwest politicians lobby for Big Corn, so why shouldn’t New York City officials get parochial about high finance? Fair enough. Interest groups make the world go ’round.
I just don’t think the rest of us need to buy the hype. After all, New York City isn’t some auto-addicted town in the Rust Belt. New York is a major financial capital—that’s true. But it’s also a major capital for media and publishing. And advertising. And tourism. And film and TV production. And the theater. And fashion. Excluding all the companies that make their money in banking, insurance, real estate and other sorts of finance-related industries, New York City is still home to 45 Fortune 500 companies, including Verizon, Pfizer, News Corp., Colgate-Palmolive, Estee Lauder, Barnes & Noble and JetBlue Airways. And that’s not counting companies in the ‘burbs, little outfits like IBM and PepsiCo.
I thought it was very telling when, at that RPA meeting, someone in the audience asked Lieber to name the biggest threat to New York City’s economy. Without missing a beat he said, “immigration policy.” That’s right. Not financial re-regulation. Nope. It’s the fact that the world sends its brightest students to the United States to receive their college education and then, $250,000 worth of investment later, we send them home because they can’t get visas to stay in the country. “It’s not great politics, so you have to keep pounding away at our representatives,” Lieber said.
That would be a much better use of time than fighting financial reform.