How resilient is New York City?

By Felix Salmon
October 31, 2012

What a difference a day makes: yesterday, the streets of hurricane-devastated New York were largely empty; today, the electrified parts of the city are in a massive state of gridlock. It’s just as well the threatened Obama visit isn’t happening: traffic in Manhattan and most of Brooklyn is bad enough without it.

New York began as a small town based at the Battery, and slowly expanded northwards towards Wall Street (where the city wall was originally built) and beyond up to City Hall. It then expanded from there to the megalopolis it is today — but the heart of the city has always been, and will always be, downtown, where the East River and the Hudson River meet New York Harbor.

And right now, that heart — downtown New York — is a black hole. No electricity, no cell service, no heat in most buildings, no subway service, not even after it is restarted on a limited basis tomorrow. The temporary subway map is stark: everything just comes to a sudden halt at 34th Street, and at Borough Hall/MetroTech in Brooklyn. No electricity means no subways, and also no traffic lights.

In many ways, one of the most heartening lessons of Sandy was the utter lack of chaos in downtown Manhattan after the power went out. When the sun rose on Tuesday morning, cars, bikes, pedestrians, and emergency vehicles navigated the grid of streets efficiently and without rancor, and the amount of time it took to drive across town was if anything lower, with all the businesses shut, than it would normally be with all the traffic lights working. Public-spirited acts were everywhere: volunteers taking it upon themselves to direct traffic at major intersections; people bringing down power strips to the few outlets with generator-powered electricity; restaurants serving up their food for free to the local population; coffee shops jerry-rigging propane-based systems to give the people what they really need.

It turns out, as students of the Dutch woonerf system could tell you, that when drivers are forced to self-govern, rather than simply following the orders of speed limits and traffic lights, the system generally works extremely well, at least until traffic reaches a certain density. Similarly, the speed-limits-and-traffic-lights system also tends to work pretty well, until it doesn’t.

The idea is to maximize the number of person-miles per hour, especially during the morning and evening peaks. And there’s a real science to this: up until a certain point, if you add an extra car to the system, that increases person-miles per hour, just because that car contains people who are traveling a certain number of miles. But past that point, adding extra cars doesn’t help; instead, it hurts. You know how on a freeway traffic can be flowing smoothly and then suddenly grind to a halt for no particular reason? At that point, clearly, the capacity of the freeway to generate person-miles per hour plunges. And city traffic works the same way. In extremis, once you reach gridlock, no one is moving anywhere. And a world where people take half an hour to travel five blocks is clearly a world where they all would have been much better off just walking.

This morning, and this evening too, New York — electrified New York, that is, above 39th Street — suffered some of the worst gridlock it has ever seen; in a press conference, mayor Michael Bloomberg said that “the streets just cannot handle the number of cars that are trying to come in”. This is the context in which cab company Uber is boasting that it is “doing our best to figure out ways to get more cars on the road.” They’re even losing money by doing so — and exacerbating congestion at the same time. Under the Uber model, a lone driver will drive an often-substantial distance to pick up what is usually a lone passenger, will then drop off that passenger, and repeat the procedure over the course of the day. The car rarely has more than two people in it, often only has one, but is driving around the city and contributing to congestion on a continuous basis. (In contrast to private cars, which at least have the decency to park themselves out of the way when their job is done.)

The city of New York has a much better idea when it comes to cabs. Yellow taxis are being encouraged to get passengers to share rides, while black cars are allowed to pick up street hails (and can also pick up additional passengers). On top of that, the mayor announced today, there is going to be a new rule in effect tomorrow: if you’re driving into Manhattan after 6am using any of the major bridges or tunnels, you’re going to need to have at least three people in your car. Otherwise, you won’t be allowed through.

There’s a problem with this policy, which is that people are going to find it relatively easy to “slug” their way into Manhattan, getting rides with drivers who otherwise wouldn’t be allowed in, only to be stuck when those same drivers happily leave the island without them. But the principle is a good one: there’s no way that private cars can possibly transport everybody who needs to come into Manhattan, and as a matter of public policy, everybody gains if the number of private cars in the city is reduced. This is not the first-best policy, but it is the easiest to implement immediately, and in a situation like we have right now, you can’t have the perfect be the enemy of the good.

If the East River subway tunnels remain closed for more than a few days, however, this stopgap approach is not going to work. Millions of people commute from Brooklyn to Manhattan every day, and the only way they can be accommodated is with those subway tunnels. Every day those subway tunnels are out of operation is a day that New York City is essentially not functioning. And by one estimate, it could take weeks or even months for those saltwater-flooded subway tunnels to reopen.

Which means that the bigger-picture lesson of Sandy is the importance of investment in infrastructure. Our electrical utility, unable to find $250 million to spend on things like submersible switches and moving transformers above ground, is making adjustments only gradually — with the results we saw on Monday night. And $250 million is small beer compared to the kind of money it would take to protect New York Harbor from hurricanes, and to protect those subway tunnels from Sandy-level storm surges. Still, $10 billion or even $50 billion spent up-front would not only be a large economic stimulus for New York, but would more than pay for itself if and when global warming means that more hurricanes hit this area.

Where would that sort of money come from? Cate Long has one suggestion:

The most obvious source of funding for these projects would be for the Federal Reserve to purchase public infrastructure bonds instead of the $40 billion a month of mortgage-backed securities it has been buying. The housing market is important, and keeping mortgage rates low is useful, but investing in public infrastructure is much more important for the nation now.

It’s not a bad idea: the Fed would do more long-term good for the country by buying infrastructure bonds than it would buying mortgage-backed securities. But there are problems with it, too: once the Fed stepped in, the chances are that no one else would lend, and private financing of public infrastructure would actually go down rather than up.* Maybe some kind of Treasury guarantee would be better, especially since these projects are fundamentally fiscal, rather than monetary, in nature.

In any case, there’s a clear public interest when it comes to investing in and coordinating our urban infrastructure. America’s cities, including New York, have been suffering from underinvestment for decades. Hurricanes happen sometimes; traffic jams happen every day. And some smart public expenditure could help minimize the damage that both of them cause.

*Update: Some confusion about what I was saying here. The point is that if the Fed started buying infrastructure bonds, that in no way would reduce the creditworthiness of those bonds. The price would rise and the yield would fall, as always happens when a large new buyer enters the market — but at that point the yield would be lower than the yield required by the market to make up for the credit risk in the bonds. So private-sector buy-and-hold investors would no longer buy them, the Fed would to a first approximation be the only real-money buyer. As a result, the flow of private money into the infrastructure sector would go down.

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Comments
8 comments so far

Nice article and a very valid point, Felix. This hurricane rises the concern that having a Backup and Recovery plan is critical these days. Besides significant property damage, Hurricane Sandy will cost billions of dollars in lost business, and partial or complete data loss from companies’ on-site datacenters.

It’s an unfortunate lesson to have to learn the hard way, especially this hard way. But, natural disasters like hurricanes, floods or superstorms are dramatic examples of the value of cloud solutions when it comes to resiliency in the face of a catastrophe, and the ability to recover and resume operations as quickly as possible.

Here is an article that talks about some of the ways that how cloud Technology can help rebound after the unforeseen / Sandy hurricane:

http://www.dincloud.com/blog/cloud-backu p-disaster-recovery-vs-hurricane-superst orm-and-more

It’s a unique way to look at cloud technology, and I think you’ll find this approach more in line with running a resilient business.

Posted by TechMarketeer | Report as abusive

“once the Fed stepped in, the chances are that no one else would lend, and private financing of public infrastructure would actually go down rather than up.”

Could you explain the thinking behind this statement? It seems to me that knowing that there’s a gigantic potential buyer for infrastructure bonds makes holding them more attractive, not less. If the Fed actually bids the price up / yield down to the point that they buy up the whole supply (which seems unlikely), that doesn’t mean that if/when they decide to stop buying new issues, or selling their holdings back into the market, there won’t be some price/yield at which the market is willing to soak the assets back up. Our current problem is that there is TOO MUCH demand for safe assets with steady yield. If infrastructure bonds are generally perceived as a relatively safe asset, and they come with the additional safety valve that we believe the Fed will support prices, that surely is a win on all fronts — good monetary policy, repair of critical infrastructure (which is an issue all over the country, not just storm-ravaged NYC), and fiscal stimulus.

Posted by Auros | Report as abusive

The savings would come from going around the usual underwriters on Wall Street who always overcharge for public infrastructure debt and will just use the debt for arbitrage games. The cities and agencies would get a better deal on capital and the Fed would actually be doing something to boost the economy rather than keeping our obsolete financial sector on life support.

Posted by Kaleberg | Report as abusive

Bicycles. You can ride a bike through just about anything bar flooding. And it uses less petrol than my cats do. And if push comes to shove- and it might – you get can get two up on a bike. It’s so simple it’s almost stupid.

Posted by GKMPerth | Report as abusive

Same question as Auros — in what world does additional demand for an asset cause its price to fall? Do you also believe that current Fed purchases of mortgage backed securities is making mortgages more expensive? If not, what’s the difference?

Posted by JW_Mason | Report as abusive

GKMPerth–It would be interesting to see a million bikes trying to get over the Brooklyn Bridge. Even with the car lanes given over to bikes, it would be a challenge. This is a big problem for NYC–it’s basically a group of islands with fragile connections that become chokepoints when they fail (and they do–a hard rain can knock out the subway).

Posted by Moopheus | Report as abusive

In theory, Fed purchase of bonds should reduce private-sector interest in the bonds. But that reduction is by less than the amount the Fed is adding to the markets.

In practice, I wonder if this still applies? There is a ridiculous amount of “dumb money” in the markets. Felix is proud that his money follows the market averages. Most large institutional money managers do the same, whether or not they admit to it. My guess is that most of the money in the system is attempting to track the index rather than attempting to make wise choices.

In such an environment, a new purchaser buying $1B of a particular issue might lead the “me too” purchasers to purchase an additional $2B or more of that issue, simply in an attempt to track the index?

It isn’t that simple, of course. It is never that simple. But is there another theory that explains the observed persistent irrationality in the markets? As best I can tell, people are buying bonds these days simply because they are there, not because they believe the risk/reward balance is favorable.

Posted by TFF | Report as abusive
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