The seven years of exile are over. A New Yorker, Henry Paulson, is back at the helm of the Treasury Department. Mr. Paulson joins a tradition of New Yorkers at that department that stretches from Robert Rubin to Douglas Dillon back to Alexander Hamilton. Mr. Paulson brings to Washington not only his experience as a titan of international finance, but also the perspective of living in a city where poverty and wealth crowd together. The General Social Survey tells us that only 40% of New Yorkers, as opposed to 67% of the residents of Houston, agree that it’s okay to become rich if others stay poor. It therefore comes as no surprise that the New Yorker at the Treasury immediately started talking about inequality.

New York City’s exile from the presidency has been much longer than seven years. Not since Teddy Roosevelt lived in Pennsylvania Avenue have we had a true big city president. Thomas Dewey was the last major party candidate from New York City. Luckily, that looks like it may change. Mayor Giuliani is a leading Republican candidate, and Senator Clinton, who is at least something of an adopted New Yorker, is the leader among the Democrats. Even Mayor Bloomberg is considering an independent run. Not since Dewey faced Franklin Roosevelt have we had an all-New York State Presidential race. Not since Grover Cleveland replaced Chester Arthur in the White House has New York seemed so politically important.

Apart from local pride, why does any of this matter? Great cities are special, not just as centers of productivity, but also as places where ideas move nimbly from person to person. Innovation is primarily an urban phenomenon because new ideas are generated by connecting old ideas, and those connections are easier to make in big cities where ideas abound. New York’s record as an innovator in commerce, manufacturing, finance, and the arts is unmatched. It has stood for centuries as a bridge between the old world and the new where the newest books or the newest political ideas were taken from Europe and modified for local use.

New York’s edge as a center for intellectual transmission also lies behind its post 1975 economic rebirth. Henry Paulson’s industry, financial services, is the engine of the city’s recent growth. The attraction of finance to New York City is further evidence supporting New York’s special role as an information capital. As the Rothschilds proved when they earned a fortune from their carrier pigeon-based early knowledge of Napoleon’s defeat at Waterloo, there is no industry where up-to-date knowledge matters more than finance. The hyper-dense agglomeration at Wall Street provides an ideal setting to acquire knowledge quickly and to act on that knowledge.

The cramming together of disparate people in New York also creates a breadth of experience that is unlike any other in America. As a child growing up in Manhattan, I didn’t need to travel to Appalachia or the third world to experience extreme poverty. It was right there, two miles north in east Harlem. The constant sense of the extremes of human life in the city helps to create a mind-set that is surely valuable when leading a country with great economic diversity.

Despite the strengths that New York offers, and the great leaders like Teddy Roosevelt and Alexander Hamilton that the city has given to the country, New Yorkers have been, over much of recent history, denied national office. After all, to much of America, New Yorkers seem a little freakish, and Americans looking for a representative don’t naturally turn to Gotham. Since 1945, Texans and Californians have had much more appeal. The tragedy of 9/11 was letting all of America see the courage and tenacity of New Yorkers in a fight where all of the country was under assault. The national spotlight on New York courage turned Mr. Giuliani from just another big city mayor into a potential national candidate.

The challenge for our current cadre of New York leaders is to add a little bit more of Houston into their New York mindset. Nothing is as dangerous as the current trend to see not only the president, but anyone that has ever supported him, as evil. Nothing is as hopeful as New Yorkers playing prominent roles in both parties. The city has much to offer the nation, but it is only going to get to play its rightful part if it treats Red State America and its opinions with respect. I can only hope that the city is true both to its distinct heritage and to the common elements that bind together all Americans.

Mr. Glaeser is the Glimp Professor of Economics at Harvard and director of the Taubman Center for State and Local Government.