Florida on Post-Crisis Economic Geography
Richard 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