There is something unsettling about the word “stimulus.” It suggests the application of an electric shock unit to a person who has had a heart attack and needs “stimulation” to get his heart back in rhythm. In the context of reviving the economy, a stimulus does not suggest a new direction but merely the means of resuscitating the old one.
The fact remains that 72 percent of the economy has been dependent on the consumer spending 103 percent of his income, obviously an unsustainable direction. Here is the conundrum: balancing the public”™s new-found passion for saving money and the government”™s need for continued profligate spending to keep the economic ship afloat.
As Stanford economist Paul Romer famously declared: “A crisis is a terrible thing to waste.” Historically, crises are the only events that make the public pay attention. We cannot ignore the opportunities this crisis is offering us.
Old ways vs. new days
We have been digging ourselves into a hole for some time but no one seemed to care so along as we still had credit. Then along comes an economic tsunami, sweeping up homes, car companies, upscale retail businesses, countless banks and the heart of the U.S. financial system.
So the tussle between resurrecting the old economy and moving in a new direction is now in progress, neither direction offering a pain-free solution. In the Atlantic Monthly (March, 2009) Richard Florida lays it out for us ”“ some good news, some not so good, all depending on where you live.
Even though Wall Street may have arguably been the genesis of what has now become a global recession, when the dust finally settles, New York may redevelop what has made it so appealing for so many decades ”“ a mecca for fashion designers, musicians, film directors, artists and even psychiatrists, “the creative class,” according to Florida. Meanwhile, the rise of the Wall Street culture in recent times has given the city a more sterile image, overlaid with investment instruments impossible to understand and outsized bonuses based on who knows what. Unaffordable housing and a growing gap between rich and poor also contributed to the somewhat dull image generated by the run-up on Wall Street.
Though Florida, who lives in Toronto, claims that no place in the U.S. is likely to escape a long and deep recession, marking the end of a chapter in American history, and maybe the end of a whole way of life, he does qualify what the recovery is going to look like and how it will be dispersed.
Economic shifts
As far as New York City losing its status as the global financial capital, history does not suggest that that will be the outcome. In spite of the massive hit this recession has leveled against the city the financial sector still occupies a smaller percentage of the population than it does in any other city. Though there will be plenty of pain to go around, survival of Wall Street as a global force is likely. As already mentioned the city has many magnets to attract “the creative class,” the dominant face of the future.
The real economic shift in the nation will come about in quite different forms. For some time the Northeast has suffered from the steady migration of its citizens to the Sun Belt. Some of these cities were already established and grew on the basis of their historic reputation. Others, such as Phoenix and Las Vegas, according to Florida, grew exponentially on the basis of the rising values in real estate and the energy of the construction industry. The economy of these cities was built on the steady increase in the value of one”™s home. It”™s as simple as that. Without that engine of growth the economy in these states will contract as it is presently doing.
Throughout the nation there are examples of communities that have been built out of real estate and its steady appreciation. If the land was there the building continued with little thought to what exactly are the structures that hold communities together. On the other hand the dynamic city-regions ”“ Boston, New York, the Washington corridor and many others ”“ are beginning to demonstrate their competitive advantage, their ability to attract talent, the most educated and most mobile, and therefore have the largest capability of weathering the recession with which we are confronted.
Unsustainable growth
There is another aspect of Florida”™s analysis that needs to be examined, and by far the most controversial ”“ his negative assessment of home-ownership. It has been the mantra of nearly every president in the last 50 years and we now see there are serious negatives to this principle as we approach the “new age.”
In 1940 homeownership stood at 44 Â percent but by 2004 it was 69.2 percent thanks to the growing number of federal programs designed to encourage homeownership beyond any reason. That they did and we now see the outcome. Not only were people encouraged to buy, frequently way beyond their means, but they were encouraged to take out the equity in their home which allowed them to enjoy the illusory “wealth effect.”
But Florida is not just alluding to the mess the banks have created. He is pointing to the economic stranglehold that homeownership puts on a growing segment of the population. To quote Florida ”“ “the bubble was the ultimate expression, and perhaps the last gasp, of an economic system some 80 years in the making, and now well past its ”˜sell-by”™ date. The bubble encouraged massive, unsustainable growth in places where land was cheap and the real-estate economy dominant. It encouraged low-density sprawl, which is ill-suited to a creative, post-industrial economy. And not least, it created a work force too often stuck in place, anchored by houses that cannot profitably be sold at a time when flexibility and mobility are of great importance.”
As the result of high homeownership the labor market has been afflicted by a creeping rigidity which is a bad sign for the economy.
Challenging the benefits of homeownership seems positively un-American but it is a concept that needs to be re-examined.
Surviving the Future explores a wide range of subjects to assist businesses in adapting to a new energy age. Maureen Morgan, a transit advocate, is on the board of Federated Conservationists of Westchester. Reach her at mmmorgan10@optonline.net.
