by Charles Hugh Smith, Of Two Minds:

The “system” known as a city, now bloated and overgrown by decades of mal-investment, will be forced to become self-supporting.

So let’s look at the urban exodus that’s exciting so much commentary. Two essays pin each end of the urban exodus spectrum: James Altucher’s NYC Is Dead Forever, Here’s Why focuses on the technological improvements in bandwidth that enable digital-economy types to work from anywhere, and the destabilizing threat of rising crime. In his telling, both will drive a long-term, accelerating urban exodus.

Jerry Seinfeld’s sharp rebuttal, So You Think New York Is ‘Dead’, focuses on the inherent greatness of NYC and other global metropolises based on their unique concentration of wealth, arts, creativity, entertainment, business, diversity, culture, signature neighborhoods, etc.

Today I’m publishing a guest essay on the topic by correspondent R.J.:

Dear Jerry and James: You’re Both Wrong About New York, And I doubt you’ll ever be able to see why.

Fifty years ago, cartoons of New York Mayor John Lindsay were splashed across the editorial pages of American media. Pockets emptied and with a comical expression, he was depicted as a pathetic beggar, hoping somebody, anybody would loan his city the money it desperately needed to continue paying its bills.

His challenge was reflected in just about every other major city, where commercial flight, infrastructure rot, and population loss was on-going and devastating to already corrupt civic finances.

Turned out cities weren’t selling what people wanted to buy. People wanted space, property, and autonomy—the supplies of which cities are specifically designed to restrict for their leader’s own personal aggrandizement. The unprecedented prosperity of the postwar years created a large American middle class with options.

And they opted to move out.

So the city’s economic model fell apart.

Yet twenty years later after John Lindsay went begging, most large cities were experiencing a civic renaissance–with investments in world-class infrastructure, an influx of youth and talent, and rates of population growth that would rival previous heydays.

Budgets were even being balanced.

What happened?

Back when Lindsay was begging, the idea of the Federal government bailing out a city like New York was extremely controversial, even more so than bailing out individual states today.

It had never been done before. Why?

Our currency had value.

It was backed, at least in part, by gold.

Then in 1971, to prevent the last of the nation’s gold hoard from redemption and export as a result of years of trade deficits; President Nixon signed an executive order ‘temporarily’ suspending the convertibility of the dollar to the precious metal.

The currency of America was officially valueless–unmoored from reality, able be created in whatever amounts plausibility and confidence could support.

Back then there were certain hard asset markets that could still serve as honest markers of currency value; real estate, oil, precious metals–but eventually all could be undermined by corruption and manipulated by leverage.

Cities such as New York where such markets already existed could be cultivated and embraced as centers where the ‘advantages’ of the now unmoored fiat could be exploited to maximum effect.

For top efficiency in these efforts, physical proximity of the looters to each other was essential. Such proximity also supported the natural need of these sociopaths to compare individual results through possessions, hookers, and blow. And as the immense proceeds of financialization piled up, competitive philanthropy and the drive for personal safety also led to a vastly improved local quality of life.

Increased policing, improved infrastructure, cultural amenities–all were funded by peacocking financializers who in turn were funding themselves by pulling future demand forward through leveraging a fiat currency which was rapidly depreciating to its real value–zero.

Yes, the real rate of inflation could be hidden through manipulating the official calculations of metrics such the CPI (consumer price index).

Sure, the widening gaps in the real return of labor vs. capital could be masked by lowering interest rates and easing credit access.

Of course, the ‘deaths from despair’ in the countryside would rise as reality caught up with those not poor enough for a safety net nor wealthy enough to get in on the skim.

But the cities themselves would thrive–because even in a connected world they themselves were essential. They, like Las Vegas casinos for the mob, were the centralized locations where the skim itself was worked.

But there was never any actual ‘Renaissance’ of our cities. No DaVinci, No Michelangelo, No Botticelli.

Our scholars were credentialed classist legacies or confidence tricksters; our businessmen, financial engineers; our artists, propagandists.

It was all, as Elaine Benes (how appropriate) would say, “Fake, Fake, Fake.”

But, boy did that New York have energy!

Today, financialization has reached its limit.

There’s very little demand left to pull forward.

There’s very little upside to financialize. It takes a whole lot of new debt to generate one additional dollar of new revenue.

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