Imagining New York Without Super-Finance

Many people have flagged this line reported by the New York Times where one of the princes of Wall Street complains that Chuck Schumer and Kristen Gillibrand need to come to their defense on the grounds that “they need to understand who their constituency is”.

Obviously one reading of that is that the banker thinks Schumer and Gillibrand should represent their donors rather than their voters. But to take a stab at a more generous interpretation, I think what he’s saying is that politicians from California stand up for Hollywood, politicians from Michigan stand up for the car companies, politicians from Washington stand up for Boeing, and politicians from New York ought to stand up for Wall Street. That’s not a crazy view. We understand that auto-oriented transportation and housing policy is broadly beneficial not just to car company executives or even auto industry workers, but a much broader universe of Michigan retailers and service providers who benefit secondarily from high auto sales. I don’t, however, think this argument really works for New York and banking — with an interesting exception.

The main point I’d make about Wall Street from the standpoint of the average New Yorker is that at this point the city and the Street are deep into Robert Frank’s The Darwin Economy. Higher and higher bonuses are just bidding up the price of scarce goods (Central Park views, private school slots, etc.) and barely even generating positive utility for the people earning the bonuses. A huge share of the finance rents are actually being captured by people who bought strategically located Manhattan and Brooklyn land in the past. New York has very strong fundamentals at this point and is very expensive. If Wall Street mega-earners were poorer, prices would fall and new people would flood in and the city would have a stronger position in non-finance industries.

The really important exception to this, ironically, is the public sector unions whose embrace of Occupy Wall Street has been important to its success. New York State and New York City have progressive income tax codes which ensure that a very inegalitarian income distribution generates more tax revenue than a more equal division would. Thanks to fat cat bankers, in other words, middle class New Yorkers are able to consume much more in public services than they actually pay for. Given extremely high levels of inequality, many people are inclined to support generous compensation of public sector workers as a slightly clumsy means of after-tax income redistribution (why quibble over bus driver salaries when Jamie Dimon is feasting nightly on the juicy flesh of the working class) in a way that they likely wouldn’t if they were paying more of the freight out of pocket. Consequently, there’s a real tension in the movement between the objective interest of the unions in a relatively modest agenda of higher taxes on the rich and the hazy desire for a more deeply-cutting solution that would impair the pre-tax income of the Galtian Overlords.