A Metropolitan Death Spiral

Back in 2011, we explained why cities matter and how to kill them.  We never imagined that the death we predicted for our big cities would arrive so soon, but here we are.

Great American cities have recovered from major disasters - the San Francisco earthquake of 1906, the Watts riots of 1965, and the New York financial collapse in the early 1970s come to mind - but we believe that the one-two punch of the lockdown due to the Covid-19 virus combined with government officials permitting the so many destructive riots mean that our major cities may have entered into a final death spiral.

Cities offer major advantages.  Gathering large numbers of people together in the same place brings more buyers and sellers close enough together to do more business together more efficiently.

Large numbers of people can share ideas, experiments, and figure out what works and what doesn't work.  The concentration of lawyers, financiers, traders, and other specialists makes it easier to get new businesses going, which contributes to overall wealth.

There is a moral cost to cities, in that personal relationships are weaker when there are so many nearby people whom we don't know.  This makes it easier for people to feel justified in breaking laws.

Bad actors can see this anonymity as an advantage, of course - as Bertie Wooster put it, "What's the point of a big city having temptations if a young man can't yield to them?" - but looser morals lead to increased crime rates.  That makes police forces essential for maintaining the general order which is so essential to business and peaceful lives for commoners who can't afford theri own private security forces.

We've explained why our large cities have been under serious survival pressure for decades.  Vote-buying politicians give raises and promise unaffordable pensions to city employees and increase welfare spending which forces taxes up.  This drives working people out of the city.  This Harvard-defined "Curley effect" decreases tax revenue even while spending goes up because there is no end to demands for more benefits by various voting blocks.

Building codes and zoning regulations limit the housing supply which drives up rents.  Low-income people get subsidized apartments, rich people can afford lavish guarded penthouses, and the middle class is driven out.

The higher taxes get, the more people leave.  Mayor Michael Bloomberg observed that "One percent of the households that file in this city pay something like 50% of the taxes.  In the city, that's something like 40,000 people."  Back in 2009, the New York Post told us that one out of seven New York city taxpayers left between 2000 and 2008.

We see similar exodus from high-cost California cities like San Fransisco and Los Angeles.  Unfortunately, refugees from Democrat misrule don't seem to know why they had to leave and keep voting Democrat in their new domiciles, driving them into the ground too.

How Did Cities Recover?

San Fransisco recovered rapidly from the 1906 earthquake because the economic potential of California was just beginning to be realized and the entire state was booming.  The New York financial collapse was caused by the familiar process of over-spending, which was cured by appointing an oversight board which forced the city to live within its means - there were actual pay cuts and reductions in headcount!

The next crisis came in an increased crime rate which peaked during Mayor Dinkins' term of 1990-1993.  The atmosphere of fear and menace in the subways was easily felt even by unsophisticated people from out of town.

Rudy Giuliani, who had served as a United States Attorney for the Southern District of New York, served as mayor from 1994 to 2001.  He appointed William Bratton as police commissioner, who applied the "broken windows" theory of crime.

He believed that minor disorders create a permissive atmosphere which leads to serious crimes which threaten overall city safety.  He directed his police officers to enforce minor "quality-of-life" laws such as outlawing public drinking, littering, and jay-walking to encourage better behavior.  Commissioner Bratton also used a computer system to track neighborhoods where crimes occurred so that he could position police officers in high-crime areas.  These policies were continued and extended under Mayor Michael Bloomberg.

"Broken windows" policies were criticized as "racist" because more blacks were accused than would be justified by their share of the population.  Such policies were more or less abandoned under Mayor DeBlasio and crime rates were steadily climbing before the virus hit the city.  The NYPD disbanded its 600-strong plainclothes squad whose job was to keep illegal guns off the streets and recently stopped using crime statistics to send extra police to high-crime areas because it flooded minority neighborhoods with extra cops even though blak New York residents want more police protection, not less.

The Lockdown Knock Out

When the coronavirus hit, the mayor of New York was famously late in taking action.  Normally, his lazy neglect might have been beneficial by allowing business and commerce to continue, but the close-quarters condition of our greatest city coupled with its notoriously filthy subway are the most effective Petri dish for spreading diseases of all time.  Eventually, the numbers of sick and dying climbed to the point where drastic action became a not unreasonable policy, and, driven by the doomsday media, he ordered cessation of normal metropolitan life.

Locking down the city had several undesirable effects.  Small businesses, which had already been suffering from increased taxes and regulation under the mayor's misguided policies, were forced to shut down entirely.  The economic stimulus was supposed to help them meet payroll, but the application process was too complex for many and wouldn't have helped pay outrageous city rents.  Most of these independent small city service businesses won't be opening back up again even if the mayor allows it.

At the same time, many businesses which rented space in downtown office hives found that their employees could work nearly as effectively from home.  Although it's clear that efficiency suffers somewhat from people not being able to meet face-to-face, the loss of productivity seems to be turning out to be less than the savings in rent, to say nothing of the quality-of-life increases from not having to commute and being able to live somewhere - anywhere! - cheaper than Manhattan.

As workers are permitted back into offices, social distancing rules mean that offices hold 1/3 to 1/2 as many people as before.  Although prestigious buildings can command higher rents than would be considered normal, the value of an office building is determined by the value of the economic activity generated by tenants' employees who work in it.  If a building can accommodate only 1/3 as many employees, the economic value of the building is cut by 2/3.  This will eventually be reflected in the rent.  In turn, reduced rental income reduces the value of the building, which gives the owner a decent shot at asking for a property tax reduction.

History shows that when such economically-forced tax reductions aren't granted, owners skimp on maintenance and defer paying taxes as long as they can collect any rent at all, then simply abandon their properties when the roof falls in.  Over 40% of the South Bronx was burned or abandoned between 1970 and 1980.  44 census tracts lost more than 50% and seven more than 97% of their buildings to arson or abandonment.  Humorists pointed out that losing World War II to the Americans was healthier for a city than longstanding Democrat governance.

Locked-down commuters are finding that they don't have to come into the city to get their work done.  Due to media "panic porn," people are increasingly afraid of gathering in large groups needed to support theatres, concert halls, and sports facilities.  City residents are decamping to suburbs or to other states which reduces the traffic needed to support restaurants and retail.

Savvy New Yorkers know that the lockdown stopped sales tax income and dented income tax revenue.  They know that blue state governments always increase taxes instead of cutting spending, which gives them another reason besides the virus to leave.  Apartment rents are declining in New York and San Fransisco to a degree which was not seen during earlier economic slowdowns.  "Pandemic pricing" has arrived.

The lockdown makes investors less likely to start new businesses.  A Hillsdale lecture "The Economic Ramifications of Economic Shutdown" pointed out that this unprecedented business shutdown added immeasurably to the perceived risks of starting a business - you now must consider the possibility of a months-long forced delay at your expense.

Niche restaurants are one of the major benefactors of the diverse population of a large city, but most restaurants fail in their first year.  If a dedicated entrepreneur pours a lifetime of time, talent, and treasure into growing a business which can be swept away in a few weeks by an arbitrary government decree, sane entrepreneurs will be more reluctant to start businesses in large cities than they had been.

Then, the Black Lives Matter protests inspired by the death of George Floyd came just as cities were beginning to let restaurants open up.  Many owners saw their lifetime efforts destroyed by rampaging mobs as police, under direction of municipal authorities, allowed arsonists and looters free reign.  Ignoring rioters has emboldened other criminals, and violent gun-based municipal crime is climbing again in New York, Chicago, and Minneapolis.

In addition to calculating the risks of economic ruin brought about by a shutdown due to the next viral plague out of China, entrepreneurs have to think about the risks of being a victim of increasing city-based crime and of losing police protection as protests spin out of control during the next riot.

Cities Lose their Monopoly

It used to be said that anything you couldn't buy in New York, the city that never sleeps, couldn't be bought anywhere.  The lockdown showed that people could easily cope with the loss of access to the incredible variety of city stores by ordering from Amazon - there were moments when Amazon sold $10,000 worth of goods per second.

Here are the obstacles to New York coming back from the dead once again:

1. The lockdown shows that governments can put a longstanding enterprise out of business on what turned out to be misguided whim in most of the nation.  The death toll has turned out to be no worse than a somewhat bad flu season, and we never shut down for the flu.  No politicians have paid any price for this mistake; most have simply increased their power.
   
2. Blue state governments have shown themselves unwilling to defend stores against looters - "Property can be replaced; human lives cannot." Entrepreneurs will think yet again before starting new businesses.  Without places to work, people who don't qualify for subsidized housing can't afford to live in blue cities.
3. Predictions based on "science" can't be trusted because they've become totally political.  The pandemic models were grossly inaccurate, and both The Lancet and the New England Journal of Medicine had to retract sloppily-written articles about the virus.  These once-revered publications and the frauds who wrote for them appear to have paid no price for their errors.
4. The pro-lockdown forces showed utter hypocrisy in saying that semi-masked, block-long crowds protesting racism were OK while much smaller gatherings for churches, funerals, and Trump rallies were not OK.
   
5. Government advice whether individuals who are not ill should wear masks or not has changed rapidly and inexplicably.  This further reduces overall confidence in all levels of government, including governments of our most violent cities, most of which have been run by Democrats for decades.
6. People found that a lot of white-collar work that had been done in office skyscrapers could be done from their bedrooms via the Internet and video conferencing applications which weren't available during New York's earlier financial crisis.  There are more alternatives to the former city monopoly on high-density collaboration than in the past and people were forced to explore them.  They've been proven to work tolerably well, and will only get better as understanding grows.
   

Cities offer many advantages, but when the cost of living in a city exceeds the benefits, people will leave.  When the white middle class flees, black flight is not far behind.