All of these events are huge economic drivers. Even nonprofit culture boosts the economy. According to a recent report by Americans for the Arts, a Washington, D.C.–based think tank, nonprofit cultural organizations, though exempt from paying federal income taxes, contributed $30 billion in revenue from other taxes to all levels of U.S. government in 2005. Considering that all three levels of government (local, state and federal) combined allocated only $4 billion in annual funding in the same year, that amounts to a 650 percent return on investment—or, as the report wryly put it, a return that would "thrill even a Wall Street veteran." These same organizations contributed $104 billion in household income, 5.7 million jobs and more than $166 billion in overall economic activity.

In New York City, the arts industries represent the fourth-largest employer, utilizing more workers than the high-tech, engineering or media sectors (contributing some 160,300 jobs, $8.2 billion in wages and $904 million in taxes to the city in 2005, according to my analysis of U.S. Census data). Data from the New York comptroller’s office indicates that the financial services industry brings in at least 10 times more in salaries, yet one of the reasons the city thrives as a global financial center—with a high-end real estate market to match—is its competitive advantage as a cultural center.

We also need a steady stream of young artists to preserve the cultural character of a city.

Philanthropists, including Microsoft cofounder Paul Allen and New York mayor Michael Bloomberg, are no strangers to the importance of art and culture in creating a thriving metropolitan region. But the current strategies that most philanthropists use—donating to museums and big cultural institutions and investing in artwork—might not be enough. Though these efforts preserve our cultural history, they do not support the up-and-coming generation of artists.

The art that philanthropists support through donations to cultural institutions becomes possible only if artists live in an environment that stimulates the creation of art. Philanthropists might consider becoming "antigentrifiers" who invest in the places where art is produced. A bohemian neighborhood might look like a great place to invest in luxury condos, but those who really appreciate art would do well to support the small studios, fledgling galleries and emerging designers’ lofts through subsidies or grants that protect creative people from the gentrification that pushes them out.

Just as we need bankers to keep Wall Street humming and computer scientists to continue to produce cutting-edge innovations in Silicon Valley, we also need a steady stream of young artists to preserve the cultural character of a city.

In researching my book about New York’s cultural economy, I talked with more than 80 successful artists and found that two factors were vital to their creativity. First, a density of artistic people and organizations needs to exist in a certain area. Second, creative people need a social milieu in which to meet one another. Artists, musicians and designers do much of their business through their social life, whether establishing new collaborations, getting a job or speaking with an editor, a curator or a critic who might review their work. What has made these interactions possible in previous eras, and continues to spark new ideas in the age of telecommuting, has been a densely packed urban environment where they run into each other and attend the same events.