Florida on Post-Crisis Economic Geography

Credit to Sean McCabe from Atlantic.jpgRichard Florida, University of Toronto, writes a fascinating piece in the March 2009 Atlantic. It begins as follows: “To a surprising degree, the causes of this crash are geographic in nature, and they point out a whole system of economic organization and growth that has reached its limit. Positioning the economy to grow strongly in the coming decades will require not just fiscal stimulus or industrial reform; it will require a new kind of geography as well, a new spatial fix for the next chapter of American economic history.”

Home ownership became a part of the American dream as a direct result of the New Deal. Then, long term mortgages were invented to reduce monthly payments; government sponsored mortgage finance expanded access; and the mortgage interest deduction (in effect from 1913 to today) spurred home ownership. Maintaining artificially low interest rates from time to time sustained access to the dream. Assembly lines later cranked out automobiles; residential developments in areas outside cities spurred the spatial fix of suburbanization.

That model of economic geography made sense for its time. Then, escaping cities was appealing. “Making and moving things” were the pumps of economic activity. But the current crisis reveals excessive reliance upon home ownership as a means of building and leveraging wealth and expanding consumption beyond fundamental means. Moreover, it shows the relation between those propensities and the spatial fix, especially suburbanization. The economy’s shape has been distorted. The model is certainly unsuited to an economy pumped by “generating and transporting ideas.”

Policy implications follow directly.


It is a mistake to sustain home ownership. It is a mistake to maintain policies that encourage home ownership. The American dream has to change. It is time to return to cities and to renting. It certainly means smaller homes. Home ownership, after all, doesn’t make people happier. It inhibits mobility. In fact, it is correlated with higher rates of unemployment. Accordingly, foreclosures should not be resisted, but encouraged. Banks should foreclose on homes with mortgages in default and then rent the homes to their former owners.

Professor Florida explains: “[D]ifferent eras favor different places, along with the industries and lifestyles those places embody. Band-Aids and bailouts cannot change that. Neither auto-company rescue packages nor policies designed to artificially prop up housing prices will position the country for renewed growth, at least not of the sustainable variety. We need to let demand for the key products and lifestyles of the old order fall, and begin building a new economy, based on a new geography.”

The piece concludes: “ Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century’s Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience. Can we do it again?”

I think so, although I have to be jarred out of the home ownership piece of the American dream, which is one of Professor Florida’s points.

Image Credit: From the Atlantic story, credited to Sean McCabe

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3 Responses

  1. Christa says:

    The homeownership part of the American dream is difficult to get over. But I think that good public transportation and increased use of remote communication (like videoconferencing, etc.) might make it practical for at least those who can afford homes to own them and those who can’t to rent them.

    I just love the idea of renting recently foreclosed homes to the previous owners in markets like this one. That way, at least they don’t stay empty.

  2. A.J. Sutter says:

    I was struck by the article’s reference to an economy pumped by “generating and transporting ideas.” A recent book by the French sociologist Alain Gras (Le choix du feu (2007)) points out one form of disurption created by the switch to fossil fuels during the 19th Century: energy sources had to be extracted and transported to the places of consumption, instead of being consumed in situ. In contrast, wind and water power, use persisted long into the industrial revolution, are consumed where they are generated. For Gras, the shift to fossil fuels was a kind of historical accident, not an inevitability; but it’s one that has resulted in undesirable and unforeseen consequences. I wonder if this might not be a kind of cautionary tale regarding the position urged by Florida. (And BTW, it takes physical energy sources to generate and transport ideas, too.)

    A related concern is agriculture. Some people dismiss it as accounting for a decreasing percentage of GDP, but without it the rest of the GDP would be zero. If every country depopulated its agricultural regions in favor of increased urbanization, as celebrated by Florida, the world would become even more committed to the curent models of agribusiness/economies of scale, and globalized production of foods; but these in turn create a slew of other problems (hunger and inequality in less developed countries, vulnerability of monocultures to disease, etc.). Excessive dependence on imported food is a hot issue here in Japan; is it worth continuing that trend, for the sake of Tokyo’s being a more competitive financial center? In any case, even if Florida’s policies lead to increased food imports by the US alone, that’s sufficient to exacerbate many of these problems in developing countries.

    In short, even assuming that Florida’s solutions are good for the US, they might not be so salutary globally. My gut feeling is that Florida is too stuck in the “bigger is better” mentality that also led to the current financial crisis, the CO2 climate change predicament, and perhaps other unforeseen and unpleasant consequences to come.

  3. A.J. Sutter says:

    PS: “disruption” of course, not “disurption”.