Here at the Manhattan Contrarian I extend my congratulations to Bill de Blasio on being elected New York City's new mayor. On the other hand, I disagree with him on almost every policy idea he has put forward. (Exception: He proposes to reduce or eliminate corporate relocation and retention subsidies. Yes to that one.) He has put forth one completely impossible pie-in-the-sky idea after another, and his attempts to deliver are likely only to make a mess of things.
So let's turn to his main themes, the ones that have dominated his campaign. So far, he has been exceedingly unspecific in his actual proposals. That's important because he seems to think he can solve problems that have defeated all of his predecessors and that are very likely beyond the competence of any government, let alone local government, to solve. So, Mr. de Blasio, a few questions:
What exactly do you propose to do about income inequality?
If there is one theme that dominated the de Blasio campaign more than any other, it was what he called the crisis of income inequality. The Villager, reporting on de Blasio's victory speech on the night of his election, had these quotes:
“That inequality, that feeling of a few doing very well while so many slip further behind — that is the defining challenge of our time. …
“But the challenge today is different. The creeping specter of inequality must be confronted, and will not weaken our resolve.”
On de Blasio's campaign website, he had posted an article from August 15, 2013 by David Sirota in The Nation with the following statistic:
The scope of [the "rich class"'s] victory in New York City is breathtaking. According to Census data, New York . . . is a place where the top 1 percent of income earners make an eye-popping 44 percent of the city’s total income.
Assuming for the moment that this is a crisis, what is the proposed solution? I have seen four from de Blasio and his supporters: (1) more taxes on the high earners, (2) more in kind distributions to the low earners, (3) increased unionization and support for labor unions, and (4) higher minimum wage. Let's take these one by one:
Those who propose more taxes on high earners as a solution to income inequality don't seem to realize that the inequality numbers they rely on, like the one from de Blasio's web site above, are pre-tax numbers. In other words, increasing the tax rate, even doubling or tripling it, doesn't change the measured inequality at all. The same concept applies as to in kind distributions at the low end of the income spectrum -- things like public housing, food stamps, Medicaid and education grants do not count in the income statistics.
How about unionization as a way to raise up the lower earners? An article in the current issue of de Blasio's big fan The Nation says that "A comeback for New York's working class will require the revival of unions." Good luck with that. Here's some history I'll bet de Blasio does not know. In 1965 New York had over 1 million heavily-unionized manufacturing jobs. The number today is 49,500. That's a decline of over 95%. A reasonable way of looking at this is that the unions forced their employers out of business. And the process continues in other industries. New York's construction unions continue to lose ground, and are almost completely gone from residential construction. When the World Trade Center is finished during de Blasio's first term, will there be any comparable union job to replace it? In supermarkets, the old-line union shops (D'Agostino, Gristede's) are still staving off Wal-Mart and Target by political action, but meanwhile non-union Whole Foods gains ground rapidly. The unionized Postal Service is imploding before our eyes. During his campaign, de Blasio attended rallies for fast food and car wash workers seeking unionization. There's a reason that those kinds of very small businesses have essentially zero union penetration, namely, that any such business that accepts a union will quickly go under in a hyper-competitive environment. Manhattan office workers, our big growth area for decades, are in a race for advancement that unions would only obstruct. No union even tries to organize them. It's very hard to see how the future for private sector unions in New York is anything other than continued decline, no matter what de Blasio does.
The minimum wage? I expect a large increase to clear the City Council and be signed by de Blasio shortly after he takes office. Immediately following will be a jump in unemployment among young members of minority groups, from already unacceptably-high levels. The effect of these two things on measured income inequality will be to increase it. De Blasio will not recognize the cause and effect.
In the end, there's really only one thing de Blasio can do to reduce measured income inequality, and that is to drive the high earners away. According to that Nation article, back in 1980 and before, when New York's combined state and city income taxes approached 20% (today they're about 12%) and Connecticut had no income tax (today Connecticut's top rate is 6.5%), the top 1% of earners only reported 12% of the income. Another way of looking at that is that nobody making a big income in that era was stupid enough to report it in New York City. Of course, total tax collections were also a lot lower. Is that really where de Blasio wants to go?
How do you propose to generate "affordable housing"?
The same article in the current issue of The Nation contains a striking but I think inadvertent contradiction. In its section on income inequality, it advocates "persuading the state to end tax breaks for luxury properties." And then a few paragraphs later under "Housing" it describes de Blasio's pledge to build 200,000 units of affordable housing over ten years a "laudable goal."
They don't seem to realize that the whole mechanism by which Bloomberg got "affordable housing" built was tax breaks for luxury developers. I agree that this is a terrible idea, and leads to way excessive subsidies for small numbers of people, hidden off-budget where no one can find them. Yet The Nation proposes no alternative method, nor have I seen any workable alternative from de Blasio. Is the City to get back into the development business itself on a massive scale? If you think that's a good idea, check out any of many articles on the current financial crisis facing New York's previous adventure in the development business, the New York City Housing Authority. Here's one. Guess what? If you charge people almost no rent, they will never move out, and meanwhile you will gradually run out of money to maintain the buildings. Eventually you get where Chicago found itself a few years ago, and you have to dynamite the buildings.
And what's the plan for the hospitals?
De Blasio's second signature issue above the others may be his advocacy on behalf of "saving" the many hospitals around New York threatened with closure due to insufficient revenues to pay their operating expenses and debts. In the heat of the campaign, de Blasio actually got himself arrested in a protest over the closing of a hospital in Brooklyn Heights called Long Island College Hospital. Today, that hospital remains open under court order, although it has few remaining patients and is hemorrhaging money.
The problem here is that, up to now, the question of hospital closures has been for New York State, not the City. The small amount of money in the City budget for hospitals, other than the City-owned hospitals, has been required Medicaid sharing.
I can't even imagine a proposal for the use of City tax money or other resources for these hospitals that makes any sense. The reason that certain hospitals are going broke is that the hospital industry has over-expanded, and the weaker hospitals are therefore half (or more) empty. Shouldn't we recognize it as a good thing that there aren't enough patients for all the hospitals? Any subsidy program that keeps hospitals open will never go away -- the need for subsidy will only increase with time. It's a black hole. Is de Blasio capable of recognizing this?
And finally, what about the pensions?
And of course, the biggest issue of all is the exploding cost of city worker pensions. De Blasio has never even mentioned it. Well, he has gotten lucky this year with a 20+% run up in stock market prices. Unfortunately that may take the pressure off him, at least for the first year or two of his term. I say unfortunately because delaying addressing this problem is only going to make it worse. But I will be very, very surprised to see de Blasio address it.