This year’s presidential race has quoted a lot of numbers. The economy is the top point of contention for every candidate, and the arguments between them often stem from a difference of modeling more than anything else.
In fact, when studying economics or building economic policy, the choice of modeling is often the most important part of the whole process. Data and trends derived from the remote farms of New Mexico might look a little different from Silicon Valley. Even using national averages can be tricky, because no part of the country actually performs at average. Each region is above or below those lines, and the distinction is important.
In an attempt to overcome these challenges, the bulk of economic trends observed and measured by the left tend to come from New York City. Considering it is the largest and most diverse real sample possible in the U.S., this seems like a pretty reasonable approach. In reality, NYC is the absolute worst economic model to use for the country as a whole. Here’s why.
Income
New York has an extremely wide range of incomes. Minimum wage is currently at $9 an hour (although it is set to rise to $15 by 2018), and hundreds of thousands of workers are earning exactly that. On the other hand, the city is also home to the largest collection of millionaires in the country. The disparity creates some very weird totals.
The first big number relates to income across the city. In case you haven’t read an economic report in the last 30 years, median income is the primary indicator for a population. It’s an important statistic because it shows that half of all residents will earn more than the number and half will earn less.
In NYC, the median income is $60,000 a year. When you compare that to the national median, which is $51,000, you see that the New York economy has roughly 15 percent more money to work with in its modeling than the bulk of the country.
To put this in a better perspective, there is only one metropolitan area with a higher median income, and that is the San Francisco Bay. These numbers alone aren’t enough to deconstruct the New York model, but it’s an important place to start.
Cost of Living
It has long been known that higher median incomes correlate with a higher cost of living. The exact causal relationship is debatable, but there is no denying that higher incomes do at least contribute to rises in costs across the board. That said, the NYC income doesn’t seem too much higher than the rest of the country until you look at some specifics.
Housing is the most obvious culprit. In the U.S., the median cost of a home is $188,900, and the median monthly rent for an apartment is $1,120. In NYC, the average rental cost is $4,820 (the highest in the country), and the average mortgage prices is $690,000. You are looking at a cost factor of 4:1 for housing, even though the median income is only 15 percent higher. This is the easiest way to demonstrate how quickly income deviations can completely derail a model.
Informing Policy
Now that you have an inkling of where these models fail, it’s time to look at a few major platforms. One of the biggest movements from the left this election cycle has been the push for a “livable wage.”
The idea is that workers on minimum wage cannot afford adequate housing and other living necessities, and looking at the New York model, they would be heart-breakingly correct. Fortunately for modern economics, there are major reasons why this mentality is in error.
You have seen how income increases correlate to exponential cost of living raises. Consider, then, how doubling the national minimum wage could affect the country as a whole. The quest to provide a livable wage to all could easily push rent and housing costs to more than double their current rates everywhere in the country.
On top of that, every other price would also increase in response, from food to clothing. Ironically, the push for a livable wage stands to wreak more destruction on the lowest quintile of American earners than any other policy change in history so far.
With the easy examples out of the way, it’s important to understand that this train of thought informs almost every major economic policy that comes from the left. In Manhattan, the wealthy elite sustain a passive income that could likely absorb most of the tax policy changes that have been suggested.
Outside of Manhattan, this couldn’t be less true. The wealthy elite are disproportionately concentrated in just a few regions of the country, so trying to raise taxes on the highest quintile elsewhere creates cash-flow shortages that stifle the economy.
Ultimately, it is exactly the size and diversity of New York City that make it such a poor representation of the country as a whole. America is diverse, but that diversity is remarkably represented by geographic lines, and any economic model that fails to understand this is likely to do harm to the greater population.
Regards,
Ethan Warrick
Editor
Wealth Authority
