Saturday, August 16, 2014

Mesmerized by London and New York pundits miss the real action

Roger Cohen notes that NY and London are becoming "city states" or in another pundits phrase: gated communities for the global rich. This has given both cities a veneer of prosperity that is surprisingly shallow. After all the wealth is created elsewhere and simply parked in Park Avenue real estate. With each passing day the things that can be done profitably in these cities falls. They end up being high finance centers with a rich man's Disneyworld attsched.

And the real median wage is incredibly low for example, in New York the median wage after adjusting for NYC's cost of living which is twice that of the nation at large is $44K - London's is certainly even lower.  Compare that to the three fastest growing cities in the US (and perhaps the entire rich world) with over 2 Million people:  Houston ($68K), Dallas-FortWorth ($56K) and Austin ($54K).

And the big reason that much slower growing London and NYC are so much poorer is that they are extremely inflexible restrictive cities - it is virtually impossible to build middle class housing or services or to build big new infrastructure projects like motorways or housing estates. Thus a little bit of growth from the hot money pouring in and the cost of housing and everything else soars causing misery for most.

The really rich and successful cities in the advanced economies don't look like New York and London:  rich cities like the Texas ones are fringed by extensive private housing estates - ten of the top 25 US mega planned unit developments are in Houston, for example.  With much higher standards of living, much newer and more expansive infrastructure and a strong pro business, pro infrastructure investment bent, these Texas cities are attracting more and more economically productive activities.  The latest:  the White Shoe corporate law firms of NYC are entering the Houston market in a big way because that's where many of their corporate clients have shifted their headquarters.  NYC used to have 150 of the fortune 500, now it has roughly 53.  While Houston has 24 and Dallas 19 for second and fourth place.  In just the last year Houston has picked up Occidental Petroleum, Dallas Toyota North America and Austin Apple's Global Operations Center.

Confused by the frothy insubstantiality of the hot money rich, London and New York fail to notice that their underlying health continues to deteriorate with the fortunes of their shrinking middle class. Turning your city into a Disney World for the rich makes everyone who's not rich a puppet in the show.

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