ECONOMY AUGUST 12, 2010
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Speaking at a health care reform rally in Raleigh, North Carolina, in July 2009, President Obama declared that the worst of the recession was over. “We have stopped the free-fall. The market is up and the financial system is no longer on the verge of collapse,” he said proudly.
A year or so later, with midterm elections looming and an electorate that is as fearful and angry as any in memory, the stock market has risen, but even a breath of bad news can send it tumbling. As dismal as housing prices continue to be, they have yet to hit bottom in some places. Unemployment remains frozen at an overall level of nine-plus percent, and job creation has been anemic. If the crisis belonged to George W. Bush, the recovery has been Obama’s—and it has been a fragile and tentative one at best. Along with billions of dollars in stimulus payments, the president has spent down most of his political capital. So what is his next step?
That depends upon how serious Obama is about his legacy—whether he is looking to win votes for himself and his party in the short-term, or to lay the foundation for a durable new economic and social order that is only beginning to emerge but is required for sustained prosperity. The two goals are not mutually exclusive, but neither are they always compatible.
Let me say first that the bailouts and stimulus programs of the last two years were not a complete mistake. Economic policymakers don’t have the luxury of hindsight in the heat of a crisis; there is tremendous pressure on them to do something. It would have been suicidal not to give the banks the capital infusions they needed when the whole financial system was on the brink of meltdown or to refuse to help states avoid laying off thousands of teachers and police and other workers.
But now we find ourselves having the wrong debate—about whether a stimulus is needed or not—and we need to shift it. The fiscal and monetary fixes that have helped mature industrial economies like the United States get back on their feet since the Great Depression are not going to make the difference this time. Mortgage interest tax credits and massive highway investments are artifacts of our outmoded industrial age; in fact, our whole housing-auto complex is superannuated. As University of Chicago economist Raghuram Rajan wrote recently in the Financial Times: “The bottom line in the current jobless recovery suggests the US has to take deep structural reforms to improve its supply side. The quality of its financial sector, its physical infrastructure, as well as its human capital, all need serious economic and politically difficult upgrades.” Now we’re getting to the nub of the matter.
Why? Because this is no bump in the business cycle that we are going through; it is an epochal event, comparable in magnitude and scope to the Great Depression of the 1930s, and even more so, as historian Scott Reynolds Nelson has observed, to the decades-long crisis that began in 1873. Back then our economy was undergoing a fundamental shift from agriculture to industry. We are in the midst of an equally tectonic transition today, as our industrial economy gives way to a post-industrial knowledge economy—but by focusing all our attention of whether we need a bigger stimulus or a smaller deficit, we’re flying blind.
These kind of epochal changes, which I have called “great resets,” are long, generational processes. They are driven by improvements in efficiency and productivity, and by the waves of innovation that Joseph Schumpeter called “creative destruction.” When economies slow down, inefficient companies go by the boards. Seeking better returns on investment, businesses redirect capital towards innovation. When the economist Alfred Kleinknecht diagrammed U.S. patents along a timeline extending through the nineteenth century, he found a huge spike in the 1870s, 1880s, and 1890s, a period of depression that also saw the invention of electric power, modern telephony, and street and cable car systems. The economic historian Alexander Field observed a similar clustering and unleashing of innovation in the 1930s, which he dubbed the most “technologically progressive decade” of the twentieth century. More R&D labs opened in the first four years of the Great Depression than in the entire preceding decade, 73 compared to 66. By 1940, the number of people employed in R&D had quadrupled, increasing from fewer than 7,000 in 1929 to nearly 28,000 by 1940, according to the detailed historical research of David Mowery and Nathan Rosenberg.
Our transition from a Fordist mass production economy, based on the assembly line, to a knowledge economy, in which the driving force is creativity and technological innovation, has been under way for some time; the evidence can be seen in the physical decline of the old manufacturing cities and the boom in high-tech centers like Silicon Valley, government boomtowns like Washington DC, and college towns from Boulder to Ann Arbor. Between 1980 and 2006, the U.S. economy added some 20 million new jobs in its creative, professional, and knowledge sectors. Even today, unemployment in this sector of the economy has remained relatively low, and according to Bureau of Labor Statistics projections, is likely to add another seven million jobs in the next decade. By contrast, the manufacturing sector added only one million jobs from 1980 to 2006, and, according to the BLS, will lose 1.2 million by 2020.
This is the future towards which our post-industrial economy is already trending—and government should be proposing policies that will help to create a new geography and a new way of life to sustain and support it. But that doesn’t mean we need a centralized public bureaucracy to speed the process of change. As it happens, innovation occurs not only within big companies, major laboratories, and research universities, but also on the margins of business and academia. John Seely Brown, the former director of Xerox’s storied Palo Alto Research Center (PARC), has observed that many, if not most, of today’s high-tech innovations are products of the open-ended, collaborative explorations of hackers. Steve Jobs didn’t invent the PC; he saw its components at work at PARC, realized their potential, and put the pieces together.
Silicon Valley attracted the smartest innovators and entrepreneurs and provided them with the freedom and the funding to mobilize the resources they needed to start their own companies. What worked in Silicon Valley has to be reproduced across the board—government and business need to work together to create and maintain an open environment for innovation. That means dialing back intellectual property restrictions to encourage a freer flow of ideas; encouraging universities to open up their labs and discoveries to the world; and actively enabling and attracting entrepreneurs (a resource that is in truly short supply) from all over the world to come to the U.S. and turn new discoveries into companies that can grow and create jobs. We have to encourage our own young people to take risks and start companies, too. That means providing portable benefits, and not just in health care.
Our whole education system needs a drastic overhaul to make its teaching styles less rote and more dynamic, to encourage more hands-on, interactive creativity. The centralized school system as we know it is, after all, another product of the Industrial Age. And we shouldn’t fret about having to teach non-native students the English language either. An uninterrupted inflow of talented immigrants is absolutely key to our future prosperity.
Entrepreneurship should become the fourth R, right alongside reading, writing, and arithmetic. Kids need to learn more than just the abstract principles of economics—they should be taught how to form businesses, create business plans, and market their ideas. Education can no longer be confined to traditional academic subjects; students must learn how to create something of their own. Imagine if we devoted a fraction of the time and money and passion that we give to athletics to helping our young people learn how to turn their ideas into enterprises. We are wasting time and resources training young people for factory and administrative jobs that no longer exist; they have to learn how to innovate and create jobs of their own.
That brings me to a central issue that has been completely absent from the current debate. As our new economy emerges, a new way of life and a new geography of living and working must come into being as well. We didn’t finally emerge from the Great Depression until the rise of the suburbs in the 1950s, which fuelled demand not just for single-family homes but for the cars, refrigerators, washer-driers, TVs, and stereo systems that were coming off the assembly lines. Home ownership provided a powerful form of geographic Keynsianism.
But that system has reached the end of its useful life. It has led to overinvestment in housing, autos, and energy and contributed to the crises we are trying so hard to extricate ourselves from today. It’s also no longer an engine of economic growth. With the rise of a globalized economy, many if not most of the products that filled those suburban homes are made abroad. Home ownership worked well for a nation whose workers had secure, long-term jobs. But now it impedes the flexibility of a labor market that requires people to move around. My own research shows that the most innovative, most productive, and most highly skilled regions have rates of homeownership of 55-to-60 percent, while those where homeownership exceeds 75 or 80 percent are economically distressed.
Federal policy needs to encourage less home ownership and a greater density of development, along with the construction of smaller and more low-energy houses—not just because this is a greener way of life (which it is), but because it’s required to free up capital that can be invested in the skill development, technology development, and economic structures that the economy of the future requires. That means eliminating the mortgage interest tax deduction along with other massive federal subsidies for the secondary mortgage market, as well as other massive subsidies for road construction and infrastructure that undergird sprawling, economically inefficient, utterly wasteful suburban and exurban development. I am not advocating that we become a nation of renters, but the balance of homeownership should tilt back from its current level of 66 percent to perhaps 60 or even 55 percent.
Instead of further encouraging the growth of an auto-housing-suburban complex, the government should promote those forces that are subtly causing the shift away from it. Chief among these are the creation of inter-connected mega-regions, like the Boston-Washington corridor and the Char-lanta region (Atlanta, Charlotte, and Raleigh Durham) and ten or so more across the United States. Concentration and clustering are the underlying motor forces of real economic development. As Jane Jacobs identified and the Nobel Prize-winning economist Robert Lucas later formalized, clustering speeds the transmission of new ideas, increases the underlying productivity of people and firms, and generates the diversity required for new ideas to fertilize and turn into new innovations and new industries.
In fact, the key to understanding America’s historic ability to respond to great economic crises lies in what economic geographers call the “spatial fix”—the creation of new development patterns, new ways of living and working, and new economic landscapes that simultaneously expand space and intensify our use of it. Our rebound after the panic of 1873 and long downturn was forged by the transition from an agricultural nation to an urban-industrial one organized around great cities. Our recovery from the Great Depression saw the rise of massive metropolitan complexes of cities and suburbs, which again intensified and expanded our use of space. Renewed prosperity hinges on the rise of yet another even more massive and more intensive geographic pattern—the mega-region. These new geographic entities are larger than the sum of their parts; they not only produce but consume, spurring further demand.
Infrastructure is key to powering spatial fixes. The railroads and streetcar, cable car, and subway systems speeded the movement of people, goods, and ideas in the late 19th century; the development of a massive auto-dependent highway system powered growth after the Great Depression and World War II. It’s now time to invest in infrastructure that can undergird another round of growth and development. Part of that is surely a better and faster information highway. But the real fix must extend beyond the cyber-economy to our physical development patterns—the landscape of the real economy.
That means high-speed rail, which is the only infrastructure fix that promises to speed the velocity of moving people, goods, and ideas while also expanding and intensifying our development patterns. If the government is truly looking for a shovel-ready infrastructure project to invest in that will create short-term jobs across the country while laying a foundation for lasting prosperity, high-speed rail works perfectly. It is central to the redevelopment of cities and the growth of mega-regions and will do more than anything to wean us from our dependency on cars. High-speed rail may be our best hope for revitalizing the once-great industrial cities of the Great Lakes. By connecting declining places to thriving ones—Milwaukee and Detroit to Chicago, Buffalo to Toronto—it will greatly expand the economic options and opportunities available to their residents. And by providing the connective fibers within and between America’s emerging mega-regions, it will allow them to function as truly integrated economic units.
Obama allocated $8 billion towards high speed rail in his 2009 budget. It’s a start, but a disappointingly modest one. Depending on who’s doing the estimating and how high speed a system is envisioned, the price tag for a fully modern, truly national high-speed rail system runs somewhere between $140 and $500 billion. That’s a lot of money, but measured in 2009 dollars, Eisenhower’s Interstate Highway System cost $429 billion to build—which makes it look like something of a bargain.
High speed rail is just one solution—we will need many more if we are going to encourage our cities to become more densely developed, more innovative, and more economically vibrant. But we won’t find solutions if our pundits, politicians, and business leaders are still caught up in parochial arguments about debt and deficits, and how to bring back the housing industry. We can’t neglect the present, but we also have to think beyond it. If we keep spending on the old economy and our old ways of consumption and living, a new, post-industrial society may still emerge, but it will take longer to do so and it may not be one that most Americans will want to live in.
Richard Florida is the director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management, and the author of The Great Reset (Harper Collins) and The Rise of the Creative Class (Basic Books).
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30 comments
Where does tnr find these economic ignoramuses? Galston, Florida, and others. Long term fixes are needed. But for the short run, the US needs right now a short term, directed, Keynesian stimulus.. probably of $300-500B directed toward those areas that have immediate high multiplier effects. The areas are well known-- unemployment insurance, immediate job maintenance (to state employees), WPA/CCC type job creation, rebate of witholding taxes on the first $2-7K of monthly earnings, etc. We can debate how to build a better Titanic; right now, job 1 is to seal the damn hole.
- drofnats1
August 12, 2010 at 1:17am
Where does tnr find these economic ignoramuses? Galston, Florida, and others. Long term fixes are needed. But for the short run, the US needs right now a short term, directed, Keynesian stimulus.. probably of $300-500B directed toward those areas that have immediate high multiplier effects. The areas are well known-- unemployment insurance, immediate job maintenance (to state employees), WPA/CCC type job creation, rebate of witholding taxes on the first $2-7K of monthly earnings, etc. We can debate how to build a better Titanic; right now, job 1 is to seal the damn hole.
- drofnats1
August 12, 2010 at 1:17am
I gotta second drofnats here, including his opening sentence. This article is pretty much gibberish, and it is hard to know where to begin to make sense out of it because one can't make sense out of it. The bottom line is that demand will produce supply as long as the resources needed are able to flow. While we certainly have bottlenecks and constraints, including particularly infrastructure and education, right now we have excess capacity because of a lack of demand. Nuts. I shouldn't bother. What drofnats said was to the point and quite sufficient. I can't add to it.
- roidubouloi
August 12, 2010 at 1:53am
I agree with Drofnats that we need an immediate additional direct stimulus of $300-500 B to maintain government services and civilized society and create jobs. Despite some deliberately provocative language, Florida is not contesting this need for short term action. He argues, rightly, that we should think about which "shovel-ready projects" and long-term investments we decide to fund. I agree, for example, that we need to take money from brain-dead new highway construction and redirect it to a revitalized rail network, both passenger and rail. Some of it sounds porky, like Harry Reid's LA to Las Vegas line or Trent Lott's Tupelo, Miss. service. But others, like reconnecting the industrial Midwest, makes sense. And it doesn't have to be Buck Rogerish. If we only restored it to 1950, we'd be getting somewhere.
- amidut
August 12, 2010 at 7:55am
Until the end of the essay, I thought it was written by Newt Gingrich, with all that babbling about unlocking creativity and potential and such. But Florida's recommendation at the end of the essay is spot-on, namely, the promotion of the development of mega-regions. President Eisenhower, by building the interstate highway system, opened the entire nation to a level of prosperity that previously had been enjoyed only in places like the industrial northeast. Before the construction of Interstates 75 and 95, the south was isolated, even Atlanta was accessible only via two-lane highways (I am old enough to remember time before interstate highways). But now that expansive development model doesn't work, not the least because we cannot afford the consumption of massive amounts of fossil fuels that it requires. The State of Florida is receiving federal funds to develop high speed rail in an existing mega-region, from Miami, through Orlando, to Tampa. But I see the development of mega-regions in response to the infrastructure, not the other way around. And the development of mega-regions will do much more than spur the economy, for they will shift transportation patterns to more efficient mass transit for longer trips within the region and to electric cars for shorter trips within the region. Am I optimistic about the prospects for the development of mega-regions? If Eisenhower were promoting the development of the interstate highway system today, he would be run out of the Republican Party as a socialist. On the other hand, Eisenhower had the good sense to promote the interstate highway system as necessary for military reasons, for the transportation of military supplies and equipment in the event of a Soviet attack. The threat today, from economic stagnation, is no less real, indeed more real, than the threat of a Soviet attack. And like today, the American economy in the 1950s was stagnant, as we adjusted to peace-time after ten years of war. The big American myth that government impedes economic progress needs to be shot down once and for all. At every point in our history it was the government that built the necessary infrastructure for the next wave of economic progress, from railroads, to canals, to clean water, sanitary sewers, and the electric grid, to highways, to airports. Critics of Florida's essay believe we must first rejuvenate the economy, by more stimulus and a combination of tax cuts for some and tax increases for others, and only then should we consider his ideas for long-term economic growth. I am sympathetic to this criticism, for all the reasons that have been described by Professor Krugman. On the other hand, I believe our consumption-based economy will not recover, cannot recover, unless and until there is a broader distribution of our nation's income; and relying on asset bubbles to support a consumption-based economy has created the mess we find ourselves in. But more stimulus and tax cuts and increases raise equity and fairness issues that appear insurmountable in today's political environment. The alternative, as Mr. Florida suggests, is to take an entirely different path, one that has been successful time and again in our history and holds the promise of long-term, shared prosperity.
- rayward
August 12, 2010 at 8:38am
This sort of "big picture" thinking is useless. Americans live in suburbs because they like living there. They support legislation that allows them to fulfill their desires. Repealing the deduction for mortgage interest would be desirable, but its main effect would be to reduce the price of housing, making houses more affordable, and thus boosting home ownership. The proposals discussed in this article would be non-starters, politically, and, of course, would have no impact on the current recession. Try again!
- AlanVann
August 12, 2010 at 8:57am
Let's do more of this long range thinking, not less. This article is an excellent part of the dialogue that needs to take place. Yes, we need more stimulus but let's not stop there.
- RWBlackwood
August 12, 2010 at 10:46am
The aspect of this analysis that confuses me is the argument that we need a) a knowledge-based economy based around creativity and collaboration, b) knit together by widely available high-speed broadband and/wi-fi, c) into futuristic sounding "mega-regions" where many more people are forced to rent, so as to be able to pick up and move entire families with only 30 days' notice from BosWash or Toroffalo to SanFrangeles or Dalstin to chase the next unstable living and working situation. I'm sure the owners of capital and rental properties would do well by this arrangement, but most of the rest of us would have trouble adjusting to a nation of high-tech hobos. How about we just expand the broadband access, make telecommuting the norm for "knowledge industry" jobs, and let people live and work where they want? Cheaper, more personally satisfying, less disruptive. Commuting is the #1 stress factor in most working people's lives, and while high-speed rail beats traffic jams and road rage, it doesn't hold a candle to working from home.
- austinexpat
August 12, 2010 at 11:16am
"I believe our consumption-based economy will not recover, cannot recover, unless and until there is a broader distribution of our nation's income." rayward rayward has identified the core problem in our economy, the result of a "supply-side" theory that is simply wrong. If you look at gross output and per capita output, we have hardly become poor. But maldistribution has become grotesque. This deprives government of necessary revenues, further destabilizing the economy. The supply-side idea is that more investment will promote growth. This is but another example of the correlation-caustion fallacy to which malahat calls our attention. In a mature economy, investment is only profitable if there is demand for the output as the opportunities for dramatic changes in productivity are not there as they are in a developing economy. The result of too much money in the hands of the investor class is both a lack of demand and too much money chasing too few investment opportunities -- asset bubbles. We certainly need vast infrastruture spending, which would itself be a huge boost to demand, but we cannot get there as long as we are hung with supply-side nuts who simply cannot accept that their ideas are wrong, have failed miserably at a huge human cost, and will continue to fail. Flattening the income curve is a necessity. Demand is everything.
- roidubouloi
August 12, 2010 at 11:24am
All of you except Blackwood miss the boat. This is tectonic. There are 300 million middle class Chinese and Indians we didn't compete with in 1960. They make the shirts and valves and refrigerators now. That's why we don't. So a whole middle class of Larry Lunchpails and their assembly line jobs have gone away for good. The Larrys now work the night desk at the Courtyard by Marriott for a fraction of what they used to earn. As the Larrys lost their household-supporting jobs, their families made up for it first, by sending Linda Lunchpail out to work, and second, by borrowing on their home equity and maxing out their credit cards. Now there are only big, radical solutions to this problem. Otherwise, we're doomed to become a nation of doctors, lawyers and hedge fund managers served by a vast army of service personnel scraping by on subsitence wages. This Florida guy has some possible answers. His big one is basically to encourage the invention or production of more iPads and 3D movies, the things that we make and the rest of the world wants to buy. Here are three more: 1. Put the Larrys to work building enough windmills and solar panels to cover Nevada. 2. Charge other countries more to defend them. 3. Promote more tourism.
- Mikelawyr22
August 12, 2010 at 11:39am
The author looks to high-speed rail as the cure for our transportation woes. However, tracks can't be laid everywhere. So how much time will be spent getting to the rail connection and how will that be achieved?
- NR114746
August 12, 2010 at 11:43am
Sorry, mike, but there is no law of nature that requires us to run trade deficits. And if we don't run trade deficits, other countries will have to buy enough from us to balance what they sell from us. The risk that we will have an exporting class that does not trade with the rest of our country but with those abroad is real, but that is adequately addressed if we ensure reasonable income distribution. Then the "domestic" economy has sufficient demand even if it is not competitive in the export markets and hence cannot import. It is silly to think that infrastructure is the answer. Answer to what question? It will not by itself produce anything unless it produces demand. No demand, no supply. No supply, no output/income.
- roidubouloi
August 12, 2010 at 12:13pm
This article is essentially half baked. How will a train between Detroit and Toronto, or between Milwaukee and Chicago, effect a fundamental change in the economy? The trains are a nice idea, and may take a few cars off the road if the fares are reasonable, parking is available and reasonable, and schedules are frequent -- all difficult and probably unlikely. But since most "information world" communication today is on the net or by phone, trains will make little difference in the fundamentals. Here's what is needed: 1) Focus on reducing the trade deficit. Put in place rules and incentives and skills so that the products -- things that people buy and consume -- are made in the US. What good is it to have a class of entrepreneurs creating jobs for people in Asia? By the way, most US entrepreneurs are creating small scale service and sales businesses and not doing anything fundamental for the economy. 2) Reduce by billions our overseas military spending. 3) Have a crash program to reduce oil imports. 4) Raise taxes on the super rich -- get some equality back into the system. 5) Stop worrying about suburbs. People like to live in houses with backyards and privacy and basements and things to be fixed and improved. That's what I have and I think it's great. But, get better local transportation in the suburbs, and be sure that the new construction is more energy efficient and to the extent possible uses US built materials. 6) Adopt a few mercantilist policies. Yes, the "m" word. The rest of the world has them, to our detriment. 7) End the free flow of low skilled, low paid illegal immigrants who keep our unemployment levels high and incomes of lower skilled workers low. 8) On a general basis remember that "information" is only a tool -- the focus should not be on the process but on the desired result, US well paying jobs making and delivering products for well paid US working families and overseas trading partners who are willing to buy as well as sell.
- PeteBeck
August 12, 2010 at 12:51pm
I suppose Eisenhower could have opposed building the interstate highway system because folks could take the train or a plane; and besides, why spend all that money so folks in New Jersey could take a summer vacation in hot and humid Florida. Maybe Eisenhower had no imagination and built the interstate highway system because he actually believed the Soviets would invade the US. If that's the case, he unknowingly launched the greatest period of economic growth in American history by building a highway system that would carry goods and services and people from place to place, something that was impossible on such a massive scale without the interstate highway system, a system that was the catalyst for and the cause of the enormous economic development of the south. So if you think Florida's idea is about promoting travel by train, you are no Eisenhower.
- rayward
August 12, 2010 at 3:11pm
The principal purpose for the highway system was actually Keynesian, but that couldn't be stated openly. Re-absorbing into the economy all of the soldiers, sailors, and airmen mustered out after the war was a big problem. Both the Marshall Plan and the Interstate Highway system had as a major part of their motivation -- hold onto your seats now -- Keynesian fiscal stimulus. The idea of the article of investing in infrastructure is not bad by any means, but the author is very confused about causes, effects, and the short and long-term impacts.
- roidubouloi
August 12, 2010 at 3:48pm
Roid, I have no idea what you're talking about. Sure, we need to run a trade surplus. But even if we do, we could wind up being a country with 30 million "haves" and 300 million "have nots." The objective is to grab a bigger share of the world economic pie, so that the "haves" keep what they have (or only get taxed a reasonable amount) and the "have nots" enjoy a lifestyle approaching that of their parents.
- Mikelawyr22
August 12, 2010 at 4:34pm
"Americans live in suburbs because they like living there." But "suburb" is more of a concept than a real description. Often people move to a suburb and discover it's more like a rather anonymous city without a center, than the friendly middle-class-populated neighborhood with kids riding their bikes down the street that they recall from their own past. There's no reason why higher and more intelligent investment in bus and rail can't reconnect suburbs with each other and with the nearby city more densely, and cut down on the need to drive everywhere. One of the main problems is that there is a faux-objective anti-urban planning language that continually describes putting $$ into building highways as "investment in infrastructure" and putting them into bus and rail systems as "subsidizing public transit."
- ironyroad
August 12, 2010 at 4:56pm
We don't need to run a trade surplus any more than we need to permit a trade deficit. What we need is trade that over relatively short spans of time remains in balance. In that manner, we do not drain domestic employment demand by buying abroad. That is not mercantilism and represents a bigger share of the world economic pie only to the extent that we produce a bigger share of the world economic pie. It would require managed trade, something anathema to the free-trade true-believers but engaged in routinely by every nation other than ours. The situation you posit is that we have a class of people who have goods or services they can sell abroad -- the "haves" -- and acquire imported goods cheaply so that they do not buy from domestic producers. That leaves domestic producers and consumers to trade with each other as if it were a closed economy (assuming we have required trade balance). We were a pretty isolated economy for a long time and were quite prosperous. So this does not by itself mean we must have a lot of have-nots. The problem is that the local producers and consumers do need to import some things, such as oil. And then they have to produce something with which to pay for it. If goods produced here are more expensive than elsewhere, the difference would have to be made up by a low exchange rate so that our goods are cheap for foreigners. That means the stuff we import would be expensive for us. However, if we do not allow the class that has high-value goods and services to sell to benefit all out of proportion to everyone else, then the problem is significantly mitigated. Not only can the rest of everyone afford the imports, but structuring so that wage earners shoulder less of the public tax burden reduces their wage demands and makes their products more competitive in world markets. A flattened income distribution in the US means that the gains from imports and exports are shared more widely, not appropriated only be a class of haves. As oil is far and away our largest import, eliminating dependence on foreign oil would solve an enormous portion of the problem.
- roidubouloi
August 12, 2010 at 4:59pm
To put it another way, as long as our per capita GDP remains high, there is enough wealth to go around. The problem is that it is not going around.
- roidubouloi
August 12, 2010 at 5:01pm
I don't know and I'm sure that there are plenty who have a poor opinion of European way of life, but I think that their train sysytem makes them more self-sufficient than we are are, not as dependent on oil as we are, and has to (I'm spitballing with confidence) have the effect of allowing them to interact and travel more often. Futuristic, sure, but isn't that what the future is? Seriously. Aren't there more answers than Socialism v. Capitalism?
- jmarshall
August 12, 2010 at 7:44pm
I thought perhaps we were building the wrong cars and wrong houses last summer. As me move further out of the core city we need our cars more than ever. But I have doubts regarding the High Speed Rail future. I live about a half mile from a mainline railroad. It divides the city for miles. And because it has right of way it disrupts normal traffic for miles. In the city it stops traffic and we have to wait for the trains to pass loudly and without care. Just because it's sold as 'High Speed' doesn't make the inconvience any less, or the benefits any better. Our train goes from the suburbs of Detroit to Chicago. Lovely trip, but you only save about an hour after the 12 stops along the way. Even at high speed you are maybe a half hour faster with all these stops. And when you get there how do you get around? Taxis? Good if you are staying in the central city, not so much in Glen Ellyn. The artlicel starts strong and he has some points, but I really don't think the author has ever studied the manufacture of commercial goods. The capital needed, the organization required and the amount of work required isn't a simple entreaupernership hop, Ship & jump. Supply lines and labor issues dominate production and lately these supplies are coming from offshore with as much up-content as possible. Yes Silicon Valley is a great leap forward, but really how many of the unskilled labor classes were brought to middle class like Steel and Autos? Silicon Valley took middle class folks and made them wealty. Part of the irony is the largest beneficiaries were the Auto & Steel companiues that took their innovations into manufacturing. Barcodes, Computer Aided Design and Robotic Automation were huge productivity drivers in a nice symbiotic relationship. But now with Detroit following the Silicon Valley Model and moving production overseas, how will this effect Silicon Valley? The jobs are not coming back. Government spending is a drop in the bucket compared to consumer spending. Thinking a few trains or venture capitalists can turn this around is a bit niave.
- CRS9TNR
August 12, 2010 at 8:59pm
"As oil is far and away our largest import, eliminating dependence on foreign oil would solve an enormous portion of the problem." And wouldn't Florida's prescription for geographic reorganization away from auto-centric sprawl to higher-density cities served by rail answer just this problem?
- AaronW
August 12, 2010 at 9:30pm
It is hardly the entire solution or even most of it. And the time scale on which the results would be felt, including the prospective re-distribution of a vast quantity of housing stock, has nothing whatever to do with economic recovery. The only benefit of these proposals for economic recovery would be the spending of government money in the short-term. For that purpose, "digging holes and filling them in" (Keynes) would accomplish the same thing as long as people were getting paid to do it. Of course, if we are going to spend money, we should much prefer to spend it on useful infrastructure than on digging holes.
- roidubouloi
August 13, 2010 at 5:39am
Found Florida's clustering ideas valuable, but at one point he says we need to get rid of subsidies for infrastructure but later talks about the huge need for investment in infrastructure. Did I misread him?
- sollyman2
August 13, 2010 at 7:30am
The real value of high-speed rail is that it equalizes the cost of living across a broader group of people, by making a wider range of housing accessible to a wider range of business. Highways are a more limited way of doing this, because commuting by car is dead time (compared to commuting by rail) and because of the parking problems once you get to the city - which drives up the expense. That's why rail is such a valuable option. But the real issue is evening out the variations in the cost of living so that people living in, say, lower-cost Pennsylvania could get into the heart of New York in an hour, do business there economically, and then leave again.
- art.kleiner@booz.com-old1
August 13, 2010 at 10:40am
It can't really work that way, art. You could maybe cut the time down if you ran a non-stop train, but that would serve only one location that would effectively be a satellite of NYC. As soon as you start making multiple stops, high speed trains over such a short route become uneconomic. You need fairly long uninterrupted runs for them to work which means their real purpose is to replace interstate highways and air travel. Probably that means mostly air travel as the people who don't need their cars along the way and are traveling between widely separated cities are likely flying in most cases now.
- roidubouloi
August 13, 2010 at 11:42am
But roi, there's another issue. It's true that the highspeed trains can't stop at every small town if a reasonable pace is to be maintained, but "flying" isn't just something that you flip a switch for either. If you want to fly to a small place from a larger place in America, you are going to find that fares for small airports are generally more expensive than to main destinations and flight options very limited. I live in East Tennessee, and I go to Washington now and then. My options are an 8-hour drive along the I-81, which can be tedious and tense, especially in wintry weather, or a direct flight (80 mins or so) which operates twice a day, or a much longer flight with a layover. But it's not so bad for me as a we have a reasonably-sized airport here. If you are further out in East TN or over the line in northern VA, you've got to add some driving time to that. So there would be, at least in theory, attractions in a mode of travel that took somewhere between 80 mins and 8 hours, and provided new options for areas on the way that don't have airports with good connections next door. I was very disappointed that the new rail plan has a total blank for TN, despite that fact that a logical corridor exists from Memphis through Nashville and Knoxville and then across northern VA to Washington. Another great advantage of trains is of course that they put you near the center of the city, as opposed to (e.g. in the case of Dulles airport) an hour away from where most people want to go. I think the potential depends on a lot of things coming together, but beyond all one needs a civic and economic vision that can engage Americans' interest for this. And someone with a hard enough neck to resist the attempts by Southwest Airlines and others to block rail development.
- ironyroad
August 13, 2010 at 2:02pm
Irony, Don't get me wrong. I think highspeed trains are great. A good friend is a top executive in the engineering division of Alstom Transport, the French company that manufactures the TGV and Thalys. I love hearing about them, I love riding them. But they are primarily of advantage as middle-distance transport, nor for commuting and nor for travel beyond that distance at which point air travel is much more convenient. Europe as a whole has a lot of major cities separated by that distance. The US is bigger, its major centers more spread out, so there is less opportunity. But it is important to understand what you do and do not get. You don't get near-term stimulus which is what we currently need. A restructuring of residential patterns would take a long time because we have a huge existing housing stock that is not going to pick up and move. And our economy is not struggling because of lack of transit between regional centers. Could it be more efficient? Sure. But transport is not a major bottleneck in the US economy which is what would have to be the case for Florida's thesis to make much sense even in the somewhat longer term.
- roidubouloi
August 13, 2010 at 3:11pm
I want to thank TNR for publishing Richard Florida's important article. I don't agree with previous bloggers here that the spatial reorganization of American space away from wasteful car-oriented suburbia will necessarily take eons. As an environmental activist, I see decisions made every day and night in America regarding land use all over the country. Those decisions are influenced by current economic conditions and the vision of our citizens, developers, and public officials. Conceivably those factors can speed up the pace of change. Current economic conditions are wiping out the most impractical suburban developments and the most vulnerable property owners. More people can no longer afford the single family house on a third acre. They are being forced to become renters, which at least unshackles them from their houses and allows them to more easily migrate to where the jobs are. Also, private cars are becoming an unaffordable luxury for more people. Developers and planners will have to take notice. Energy-wasting automobile suburbia is a national albatross. There is greater international competition for energy supplies. This creates more national energy insecurity as petro-powers mount new challenges to the Western-dominated current political, cultural, and economic order. How about Venezuela, Iran, and Saudi Arabia, everyone? We will have to reorganize our national space as part of our energy efficiency strategy, like it or not. New energy supplies are not coming on stream without additional economic and environmental costs. Richard Florida has given us a broad vision of what is happening and what should be done. We can’t afford to return to status quo ante. Florida has not hammered out his vision in full operational detail nor is he completely original. He may have oversold trains. There are other modes of public transportation such as buses and riverboats. And obviously, wiser government fiscal and monetary policies are also important. Keep out those Republicans! But give him credit. He has advanced the public discussion.
- amidut
August 13, 2010 at 5:05pm
amidut writes: " I don't agree with previous bloggers here that the spatial reorganization of American space away from wasteful car-oriented suburbia will necessarily take eons." Sprawl, if anything, is set to increase if not explode. it costs a fraction to give an electric car a tank of "gas" compared to an ICE engine. A Tesla Roadster cost just $6.65 in electricity for 250 miles. Cars are getting smarter. They have radars to see obstructions. Ultransonics to help us back up. Very soon cars will talk to each other. They'll say "Don't merge, because I am here" and it'll get harder to turn your steering wheel, and tone will sound and a light will flash on the right side of the dash warning you. Or one car will tell another "My tire just blew out, I need everyone behind me to slow down quickly, and everyone ahead of me to speed up a bit" Cars are getting smaller. We are seeing the rise of 1 and 2 person commuter vehicles. That plus electric motors will will help to drive cost down (after we get over battery hump) Cars are tied into wireless networks. Mostly for traffic and emergencies. But in 20 or 30 years, expect to see cars travelling at very high rates of speed, at very close separation distances without any intervention from the drivers. You will program in your "exit" and when you arrive you will automatically be moved off of the automatic highway and back onto the manual highway. On the automatic highway, there is nothing to do. Computers will do it all for you while (likely) following a wire buried in the ground augmented with radar and a host of other sensors. There is no reason electric cars cannot do this at 125 or 130 MPH...At 125 MPH, with a 2 meter separation distance there is plenty of time for computers to make decisions. It will seem like they are hooked together with metal linkages. And given this, sprawl will increase. Dramatically.
- seattleeng
August 13, 2010 at 9:14pm