Will the Urban Renaissance Outlast the Bubble?

There's a lot of angst out there over whether products like Starbucks that seem somehow emblematic of an era of wasteful spending will outlast the current downturn.  The other day it occurred to me to wonder if the same isn't true of US cities.  The first model for an urban renaissance was, after all, New York.  But while New York's renaissance was certainly a product of a lot of factors, all of the institutional improvements were funded by the post-1982 financial services boom.  New York City is projecting its 2010 revenue will be down 30% from FY2008.  That's three years after the recession started.

Those tax revenues supported New York's extraordinarily odd income structure.  New York has extraordinarily generous poverty benefits, made possible because so many of its residents make so much money that they don't really miss the extra taxes.  A city with a more normal income distribution couldn't support that level of spending.  So if the financial industry really is permanently smaller and less lucrative, what happens to the 650,000 New Yorkers in public housing, the one in three New Yorkers on Medicaid, the 50,000 or so on TANF, and so forth?

Presumably they get fewer services, and get angrier, and commit more crimes, which don't get solved as rapidly by the smaller police force.  And the families with children start moving back out.  And presumably this problem is replicated in cities like San Francisco and Seattle which depend, indirectly, on revenue generated by the financial markets.  (That is, after all, what a stock option amounts to.)

But maybe I'm too pessimistic.  Which is what comments are for. Tell me why I'm wrong.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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