Intro

New York may be the most important city in all of human history.
Now that is a big claim because it is up against some seriously stiff competition,
and even today it's not the largest, wealthiest,
most productive or even most populous city in the world.
But as it was becoming the metropolis it is today,
it was also in turn the early foundation of what would go on to be
the largest and most dominant economy of all time.
Today in its ever-expanding borders the city has a GMP,
or gross metropolitan product of 1.9 trillion US dollars,
which represents an economy that is not only larger than all but 9 of the most
productive countries in the world, being around the same size as Canada,
but it's also somehow larger than the collective economy of New York state itself,
which is worth exploring to see how that's even possible.
The sheer scale of this metropolis does start to make a little bit more sense
though,
when it's considered what it made possible.
New York is the financial capital of the world,
in a country that is the de facto global center of trade,
geopolitics and it must be recognized, military power.
Just a few small buildings in this city bring in trillions of dollars from all
around the world
and put it to work in some of the most valuable and productive companies ever
created.
Some of these companies, like Apple and Microsoft,
are now individually worth more than every single public company listed in
countries like Australia,
which is itself a major global economy.
Unsatisfied with just being the center of the world's largest financial markets,
New York City is also developing a technology center that is rivalling
other US cities like Seattle and San Francisco,
on top of other substantial industries that don't get as much attention,
like film, media, tourism, and perhaps surprisingly, even manufacturing.
New York is also a city that is more than the sum of its parts,
and it's growth from a Dutch trade port to the center of global finance
can also teach us a lot about the economic development of the United States as a
whole.
Simultaneously, it can also give us some insights into its future.
Megacities have been powerful drivers of global economic growth for the past
century,
but they have their problems, and a lot of those problems are becoming
increasingly apparent in the megacity that arguably started it all.
So, what is it that made New York City in particular so economically dominant?
What can the city reveal about the economic success of the rest of the USA?
And finally, what are the economic challenges that this city is going
to need to seriously address in the coming years?
After we've done all of that, and just for a bit of fun,
we can put New York City on the economics explained, uh,
anything we can put on a map leaderboard.
History
One of the biggest issues in New York City is that it costs so much to live there
that
people have to work incredibly long hours just to pay rent.
This is a lot of pressure, and for a lot of people,
this can lead to feeling unbalanced and even numb as your body adapts to always
being on.
One of the best ways to keep your mind and body in balance is to regularly talk to
a therapist,
and that's why I recommend BetterHelp, the sponsor of this video.
I've been talking to a therapist for a while now,
and I've found that I feel lighter and more able to do my work without getting
stressed at the
pressure. BetterHelp's licensed therapist can help you figure out your work-life
balance to
better fit with who you are as a person and not let yourself get overwhelmed.
You can check in with your therapist on your schedule,
change to someone different you get along with more,
and start giving yourself more time for yourself and not just going all-in on your
work tasks.
If you go to betterhelp.com slash ee, you'll receive not only a 10%
discount on your first month with BetterHelp,
you'll also be supporting this channel at no additional expense to you.
The city of New York as it exists today really got started when the new United
States of America
pushed out British forces at the end of the American Revolutionary War in 1783.
The city was already well-established at the time and served as something of a
central
base for British forces, and it was the last place they held before withdrawing
from the war entirely.
Before that even, the region went back and forth between the British and the Dutch,

and there was a good reason why all of these powerful empires fought so hard over
this area.
New York's geography is absolutely amazing for trade.
The area creates a natural safe harbour protected from the ocean,
but it's still deep enough to accommodate ships that can make it across the
Atlantic between
Europe. The entire east coast of the USA has a fair few of these natural port
formations,
which is a massive advantage over countries that have to create their own deepwater
ports
from scratch, or just don't have them at all.
Even today, despite the fact that other industries have grown to dominate the city,

New York is still home to the fourth largest shipping port in the USA,
one that is almost twice as large as any of the ports on the west coast,
which are primarily responsible for trade with China.
A quick but really interesting side note is that the only ports in the USA that are
larger than
the complex in New York are the ones based around the connection between the
Mississippi
River and the Gulf of Mexico. An immense amount of production gets done around the
river and goods
can be very cheaply transported up and down the river, connecting at either end to
ports that
provide these industries with their supplies and export their finished products
around the world.
New York also benefits from this kind of trade to a slightly smaller degree,
because the Hudson connects through a series of canals to the Great Lakes,
another region that is home to huge industrial centres.
Beyond just New York itself, these lakes and networks of navigable rivers are one
of
the foundational reasons that the USA is an economic superpower today.
The cost to transport things via these riverways is very low,
because riverboats don't need to be seaworthy or particularly powerful.
Moving stuff on these barges is cheaper than trucks,
trains or even competitive with container ships over the ocean.
Oh, and it has the small advantage of already being built,
unlike other transport infrastructure that can cost billions of dollars to
construct.
Beyond just transportation, rivers provide sanitation, irrigation and even food.
Large river networks are common characteristics amongst other economic superpowers
like China,
where 40% of their economy is based along just one river, the Yangtze.
Today, New York's port is not a typical trading port like it was throughout its
history.
It brings in far more goods than it exports, and most of those imports are just to
fuel
the massive demand of millions of extremely wealthy people that call the
metropolitan
area their home, which is particularly impressive to think about when it's
remembered that this is still one of the largest trading ports in the world.
Economy
So what is it then that's driving that wealth today?
Well of course, it's impossible to talk about the economy of New York and not talk
about finance.
The city is home to thousands of financial institutions and intermediaries,
but the reason that they choose to establish themselves here,
at its core, is because of the two stock exchanges in the city.
The Nasdaq and the New York Stock Exchange today mostly conduct their business
electronically,
but it's that business that arguably pushed New York from a convenient trade port
into what it
is today, while also turning the USA from a country with a lot of potential
into what is the undisputed economic superpower in the world for almost a century.
On the surface, it looks like all that these places do is shift around paper
ownership of companies, and day to day there is a lot of that,
but this all works to serve a very important purpose.
The stock market is a market like any other, it links buyers and sellers in a
manner that's
relatively efficient, certainly not perfectly efficient like some economists would
have people
believe, but it's still the best system we have to link producers or asset holders
who are willing
and able to sell stuff with people who are willing and able to buy it.
A market of any form is effectively a way for people to use a currency to vote on
what it
is that they want produced. In a fruit market, if everybody buys apples and nobody
buys pears,
then farmers will notice this trend and stop wasting resources on growing pears,
and instead dedicate their resources to growing the apples that everybody actually
wants.
Now this is of course a very simple example, but the feedback mechanism of a free
market
is how an economy can produce millions of goods and services with a good amount of
certainty that those goods and services will be valued.
Perhaps nowhere is this more important than in the market for capital.
What the stock markets really are is a way for companies to sell small fractions of
their
ownership in return for money that they can then use to buy more of the factors of
production,
land, labor and capital to produce more of whatever it is that they produce.
Just like the hungry market customers picking between pears and apples to choose
the fruit
that will make the best snack, investors will put their money into these markets to
pick the
companies that they think will make the best return.
Now stock markets are not unique to New York or the USA. There are hundreds of
markets all
over the world where investors can buy shares in companies either from the company
themselves
or a secondary seller. New York wasn't even the first place to do this, that was
the Netherlands
where shares in the Dutch East India Company were sold to members of the public
from the
Amsterdam Stock Exchange to fund their colonial efforts around the world before the
first permanent
European settlements in North America even existed. It would be another 170 years
before
the New York Stock Exchange formally opened, but in that time it became the chicken
and egg
of the USA's economic success. The reason that the New York Stock Exchange and
later the Nasdaq
became the largest stock exchanges in the world is because they list the world's
biggest publicly
traded companies. The reason they can do that is because they serve the world's
biggest economy,
and the reason the economy got so big to begin with was because amongst other
things,
companies could get the investment they needed to grow to scales that made them
globally dominant.
Obviously these exchanges and New York City itself is just a small part of this
productivity feedback loop, but it is an incredibly important part.
Even today when other advanced economies around the world are struggling with
innovation and
an over-reliance on basic industries, the USA is funding and building a range of
businesses
that will shape the world into the future in ways that we don't even know yet.
What's more is that people want in on this from all around the world.
Given its size and global dominance, the USA controls the world's unofficial
reserve currency.
It also has demonstrated that it is a safe place to invest where things like
property
rights are taken very seriously, and of course, despite the headlines,
it is an incredibly politically stable country.
What this all means is that if investors are looking to invest their money outside
of their
home country, the USA is the logical place to do it, and the easiest way to make
those
investments is through these exchanges that conveniently sell pre-packaged portions
of
some of the world's most successful companies.
Now just as much good as New York has done for industrialization all over the US,
trading those shares has become an industry that has done a lot of good for New
York.
The number of people directly employed in the stock exchanges is very low,
but indirectly thousands of financial institutions operate in this region
to play their part in allocating capital as efficiently as possible,
and millions of people work indirectly to support those industries.
Everybody from the workers building skyscrapers,
lawyers hammering out billion-dollar contracts,
to people cooking dinners at world-class restaurants are doing it in the city
in no small part because of the industry that has been built up around building
other industries.
All of these millions of people also demand goods and services of their own,
and quickly it's easy to see how one of the world's wealthiest cities has been
built.
Now if being the middleman between investors from all around the world and
companies seeking
that investment wasn't enough, the city has also developed some other world-leading

industries right alongside it.

The city's reputation for being the center of everything has made it the global hub
of media
and journalism and a strong entertainment competitor to cities like Los Angeles.
The city also has a growing technology sector,
which while not as developed as Silicon Valley just yet,
is still becoming home to a range of the same companies that built the
feedback loop of industrial innovation that we explored earlier.
Now all of these independent industries want to have operations in the city,
because there are real economic benefits to being close to suppliers,
customers, and even competition thanks to something called agglomeration.
It's a terrible word, but what it means is that a company trying to make a new
technology that can talk to investors, get parts, sign legal documents, hire
workers,
talk to the press about what it is that they're doing,
and even see what their competitors are up to, all within the same city block,
are going to, all other things being equal, provide better goods and services than
a
company that needs to split these functions up over lots of different locations.
The benefits of agglomeration have also maintained an industry in the city that
is rather unexpected by almost any economic theory, and that's manufacturing.
Manufacturing normally thrives where land and labor are as cheap as possible.
Cheaper factories and cheaper factory workers can make cheaper and therefore more
competitive goods.
This is the reason why a lot of manufacturing is outsourced to places like Asia,
but New York has very expensive land and some of the highest-paid residents in the
world,
because, well, nobody can afford to live there if they aren't well-paid.
Despite all of this though, New York has a very large manufacturing center,
and it's one of the city's biggest employers.
Now overall these jobs do pay less than the city's average,
and that is causing some very real social issues as the city continues to get more
and more expensive
to live in, but they still pay much more than they would in other areas that are
more typically
associated with manufacturing. The reason that this sector hasn't been the victim
of the same
industrial slowdowns that have hurt places like Detroit is because New York's
factories don't
really produce things to compete in global markets like cars, they produce things
to compete in New
York. This is a great demonstration of the intricacies of economies of scale.
Typically, producing more of a given good or service lets manufacturers specialize
more in
producing those goods and also make larger investments into production that can be
divided
up across more and goods, so in the long run producing more of something will make
the unit
cost of that good cheaper up to a point. If a company wanted to produce 1000
plastic cups,
it might not be worth it to pay for specialized moulds to mass produce those goods
because
plastic injection moulds can cost hundreds of thousands of dollars each, and
divided across
just 1000 plastic cups they'll be left with a disposable item that costs at least
$100,
which obviously no consumer is going to buy. It might work out to be cheapest in
this case to
do something like just hand make the cups costing $5 each, still an expensive
plastic cup but better
than $100. If a company wanted to make a billion plastic cups then the price of the
$100,000 mould
becomes insignificant when spread out over all the cups, and the company could also
make them
where salaries and factories are cheaper, because again the price of shipping items
in bulk is worth
it because it has such low individual cost. Economies of scale is great, but there
are
plenty of times when consumers don't want a billion of something, and that's where
small
local producers can quickly make low-production or one-off items and remain
competitive.
Most of what is produced in New York is consumed in New York, but because of the
scale of the centre's economy even this local industry employs hundreds of
thousands of people.
Unfortunately this manufacturing centre has not been amended from the effects of
globalisation,
and as more global industries that make billions of dollars from around the world
move into the city
there is less space for these industries to survive.
Ok, now just like Tokyo we are going to put New York, one of the world's most
globally
New York
influential cities, on the economics explained national leaderboard.
Starting as always with size, it's difficult to get an accurate estimate of the
economic output
of a city because there are no hard borders that define where it starts and stops,
there are few records of what's traded in and out of those ill-defined borders,
and organisations like the international monetary fund and the world bank don't
make GDP figures
for cities. To make matters worse the New York metropolitan area is spread out over

three individual states that all manage their economies in slightly different ways.

The best estimates that the team could find gives the broadest definition of New
York City,
including all of its boroughs and extended industrial areas, a total economic
output of
1.9 trillion USD making it the second largest city in the world by output behind
only Tokyo.
Compared to national economies this would still give the city an 8 out of 10.
That output is spread out over a collective population of 23.5 million people,
which means the city has a GDP per capita of $80,000 which is well above the
national average
and makes this area one of the most productive places on earth giving it a 9 out of
10.
Stability and confidence is very high, there is a reason that this city has
developed as
an international centre of everything from finance to geopolitics,
with even the UN choosing the city for its headquarters. It gets a 9 out of 10,
only losing a point because it is subject to changes within the USA as well as
around the globe.
Growth has been strong and the city is so connected to the USA's national economy
that it tends to expand and contract more or less in line with it.
Even still it has achieved an average growth rate of just under 4% for the last
decade,
which is very impressive for such an established and advanced economy.
It gets an 8 out of 10.
Industry is obviously amazing, we've only explored the biggest and most influential

stuff that happens in the city, but we could have easily spent an hour touching
on everything that makes this city what it is. Just being the global centre of
finance
would have been enough, but add in technology, tourism, entertainment, diplomatic
operations,
construction and good old fashioned manufacturing and it gets a clear 10 out of 10.

Altogether that gives New York an average score of 8.8 out of 10,
matching another global centre of finance which really blurs the line between
country and city.
New York has been critical for building up the most powerful economy on the planet,

but also the most powerful army.

Nevertheless, the comparably tiny army of North Korea poses significant challenges
to the US.
If you want to learn more about this, check out this video on Context Matters,
our new channel on geopolitics which you should be able to click to on your screen
now.
Thanks for watching mate, bye.
- Generated with https://kome.ai#