The Outlook for New York
By Arnold Kling
If there are no objections, I am going to interrupt my non-blogging to offer a downbeat economic prognosis for New York City in the wake of the storm. I can imagine that the disruption to patterns of sustainable specialization and trade could be significant and long-lasting. Even granting that this was a smaller flood than New Orleans, New York is more multi-layered and complex. The recovery process could be quite challenging.
To start with, my guess is that restoring the transit system and the electrical grid will involve a lot of interdependencies. You cannot solve problem A without first solving problem B, which requires solving problem C, and so on. Meanwhile, because A is not working, problems X, Y and Z emerge. Even when you think you have things working, there might be weeks of inspections and testing to be completed. Unless citizens and public officials are willing to accept a whole new level of risk in everyday life.
So my guess is that it will take much longer to get back to normal than most people are assuming. In fact, the process will take so long that in the meantime “normal” will have been redefined. Perhaps some transit routes will never re-open.
The loss of key transportation infrastructure raises the cost of imports (food, construction materials, etc.), even as exports (financial services) go down. This drives down equilibrium real wages in many secondary industries (food service, for example), but the adjustment process is not at all smooth. Many small businesses fail and many jobs are lost.
In order to remain ongoing concerns, many financial services firms will “temporarily” relocate to suburban offices and to virtual offices. These “temporary” adaptations will become so well entrenched that many of these businesses will not return to Manhattan.
I live in Maryland, and I know nothing about the on-the-ground situation anywhere else. But my experiences with the New York subway system, from the painful squeals of trains descending the Queensboro bridge to the labyrinthine thicket of wires that you see underground, have always provided a sense of lurking danger. I look at the maintenance challenge of the New York subway as something akin to an old COBOL program that no one wants to touch, because anyone who ever understood its inner workings has long since departed.
I hope that I am wrong. I hope that we see spectacular feats of civil engineering and remarkable returns to social capital, resulting in a robust recovery. Above all, I hope that there are no further repercussions for New York City from the storm, such as flooding from rain-swollen rivers. But at this point, my instincts lean toward gloomier scenarios.