Boom Town and Bust City: A Tale of Two New Yorks
In December, as 2010 glittered to a close, life among New York City’s affluent caste looked remarkably like the go-go good old days before the recession. At the opening bell of the New York Stock Exchange on December 1, Citigroup executives, apparently unfazed by their role in the financial crisis, clapped heartily as they celebrated the initial public offering of CVOL, a complex new financial product they had cooked up. At Sotheby’s, collectors at the Magnificent Jewels auction snapped up more than $49 million worth of gilded baubles (including a 27.2 carat Tiffany diamond necklace that sold for more than $3.6 million), making it Sotheby’s highest grossing jewelry sale ever. And at Harry Cipriani, natty-looking power-lunchers waited two deep at the bar for a table, boosting a business that only two years earlier had been troubled enough that management had considered closing off nearly half the restaurant.
“Now it’s busy, as you can see,” says Maggio Cipriani, the Cipriani dynasty’s 21-year-old magnate in training. “We’re picking up a lot.”
Nearly 100 blocks north, in the heart of central Harlem, the picture is noticeably different. Things are not picking up, at least not for Pamela Brown, 51, a poised mother of three who has recently moved into the neighborhood after losing her apartment in the Bronx. Sitting at a local Starbucks, her hair pulled into an elegant twist as if she was about to head to the office, she describes how she was downsized from her administrative job at Bank of America during the great meltdown of 2008 and has struggled unsuccessfully to find work ever since. Is her age to blame, she wonders? Race? The fact that she is still a few credits shy of a college degree?
Whatever the reason, she is getting by on food stamps and welfare, her monthly income reduced to $818 for her family of three. Soap and dry cleaning are luxuries; her youngest son has left his private school. As part of the 1996 welfare “reform” requirements, she spends her days sweeping streets for the city’s mandatory Work Experience Program. “[My friends] have this false sense that I must have done something wrong for this to happen to me,” says Brown. “But I did everything that I thought I was supposed to do.”
Such are the stories of recession and recovery wafting up from New York’s sidewalks these days. On the one side are tales of prosperity and excess, of New York as the poster child for an economic comeback so robust that Manhattan is now the fastest growing local economy in the country. On the other side are privation and struggle.
These disparate realities rarely elbow their way into the same conversation, but they are very much part of the same story, perhaps the story of recession New York. In this story, African-American men lost jobs at four times the clip of their white counterparts; their unemployment rate jumped 9 points, to 17.9 percent, the largest increase of any group during the recession. At the same time, the median salary of managers and professionals leaped 9.5 percent, while nonmanagers and nonprofessionals saw their wages tumble some 4.3 percent. And according to the New York City Coalition Against Hunger, the city’s fifty-seven billionaires (including its billionaire in chief, Mayor Michael Bloomberg) increased their collective net worth by $19 billion between 2009 and 2010, while the number of New Yorkers visiting food pantries ballooned by 200,000 during roughly the same period. Call it the trickle-down recovery that has yet to trickle down.
New York City is not an aberration; it’s just one of the more dramatic examples of the recession’s unequal grip. As labor economists Andrew Sum and Ishwar Khatiwada argued in a February 2010 paper, “A true labor market depression faced those in the bottom two deciles of the income distribution, a deep labor market recession prevailed among those in the middle of the distribution, and close to a full employment environment prevailed at the top. There was no labor market recession for America’s affluent.” No wonder 2009 set records for income inequality. In that year, the chasm between rich and poor measured even wider than it did in 1928, the last time so much wealth was concentrated in so few hands.
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Even before the Great Recession, all was not as sunny as it seemed in New York City. For the lucky minority, the boom years of the 1990s and 2000s were glorious times. As the twin forces of financial deregulation and corporate-friendly tax policies loosened the economic floodgates, Wall Street surged, lifting all yachts if not all boats. Between 1990 and 2007, average Wall Street salaries (including bonuses) ballooned nearly 112 percent, from just over $190,000 in 1990 to more than $403,000 in 2007, according to a startling new study by the Fiscal Policy Institute. During the same period, the top 5 percent of income earners—those making more than $167,400 a year in 2007—nearly doubled their share of the city’s total income, from 30 percent to 58 percent.
But for the remaining 95 percent, life was not so charmed. As unions came under assault, the minimum wage stagnated, manufacturing jobs were shipped overseas, New York’s poor and working class struggled, and its middle class wasted away. As the Fiscal Policy Institute study shows, the median hourly wage shriveled 8.6 percent between 1990 and 2007. The gap between rich and poor yawned wider—while the rich claimed ever larger chunks of the pie, the poorest 50 percent claimed less than 8 percent of the city’s annual income and the once robust middle claimed just above 34 percent, earning New York the honor of being the most unequal large city in America.
“If New York City were a nation, it would rank fifteenth worst among 134 countries with respect to income concentration, in between Chile and Honduras,” writes James Parrott, chief economist for the Fiscal Policy Institute, in his report “Grow Together or Pull Further Apart? Income Concentration Trends in New York.”
Such was the world that existed before the recession even struck, and it bore an uncanny resemblance to the Big Apple on the eve of the Great Depression, when the gap between rich and poor was epicly wide. New Deal policies helped usher in an age of unprecedented (if still relative) equality after the Depression, but it seems unlikely that the same result will come from this meltdown. In fact, it seems to be exacerbating inequality.
The reasons for this are many and tangled. They lie in the foreclosure crisis, which fell disproportionately on minorities. They lie in the fact that the hardest-hit industries—construction, manufacturing, retail trade and administrative support services—were those that employed the poor, the working classes and struggling middle. They lie in the apparent willingness of professionals and managers to slash everyone’s job but their own (Andrew Sum found no net loss in the combined number of managers and professionals employed in the country during the recession). But fundamentally, the reasons lie in policy: in a bailout that went too far and a stimulus that didn’t go far enough.
“There was an over-focus on Wall Street and business, and not enough attention paid to the people that are actually integral to getting the economy going again,” says C. Nicole Mason, a political scientist and executive director of New York University’s Women of Color Policy Network. Sum is more blunt. “Low-income people needed the most help, and they got the least help,” he said. “Nobody’s bailed out the American worker.”
By now, the Wall Street component of this story is well-known. Determined to prop up the imploding banking sector, the government mainlined money into Wall Street’s ready veins, $193 billion through TARP alone. With scarcely a qualm, it gobbled up bad assets, restored the commercial paper market and saved the money market/mutual funds industry—to stunning effect. Banks did not merely survive; they earned record profits. The stock market swooped upward. And for a select sliver of New York’s population, the most obvious signs of the recession seemed to melt away.
Once again, the statistics tell the story. According to the Fiscal Policy Institute, during the third quarter of 2009, denizens of Manhattan’s tony Upper East and West Sides enjoyed a barely recessionary unemployment rate of 5.1 percent while residents of Brooklyn’s East New York neighborhood suffered near-depression levels of unemployment (the official rate was 19.2 percent). More shocking: the unemployment rate for white men in the west Brooklyn neighborhoods stretching from Brooklyn Heights to Red Hook floated at 3 percent while black men in the same neighborhood suffered an unemployment rate of 46 percent.
“If you’re sitting in financial services, you feel like it’s stabilized, you feel like we’re out of crisis mode,” says Adam Zoia, founder and CEO of Glocap Search, a financial services headhunting firm. Hiring is up about 30 percent from 2009, he reports, and the amount of assets under hedge-fund management is back to its prerecession high of $1.7 trillion. “The compensation levels have largely recovered,” he adds.