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.