Richard Florida's The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity proposes a different hypothesis of social evolution, one more amenable to economic analysis, in which financial markets on occasion seriously misallocate capital, in ways that are a long time developing and foreseeable, albeit poorly foreseen, and the resulting disequilibrium takes a long time to unwind.
If his hypothesis is true, Book Review No. 27 is at once the gloomiest and the most optimistic report filed for this year. Professor Florida suggests that the current financial crisis, and the attendant stagnation in the industrial and consumer sectors, have more in common with the Long Depression that began in 1873 than with the more famous Great Depression that began in agriculture in the middle 1920s and caught the financial economy's attention late in 1929.
His use of the expression "reset" refers to the adjustment of the economy to new technologies that are emerging at the same time existing patterns of production and consumption break down. These can be frustrating times because at the same time the financial markets are re-evaluating projects that work, the consumer economy is attempting to find new uses for resources, and from among the potential new ideas, the best uses haven't yet emerged. Thus a public policy that attempts to restart a consumer economy based on McMansions financed by bubblelicious loans with obnoxious SUVs in the garage and a flat-screen TV bigger than Edison's movie screen will get the back of the invisible hand, hard.
What, then, is to be done? Professor Florida favors public policies that encourage the agglomeration of creative thinkers, the better to foster that emergence. But those public policies have an element of vanguardism. The National Endowment for the Arts as a way of fostering creativity in design and marketing? Does it really pay for artists to get grants reviewed by other artists to produce exotica that very few people will look at, when upscale businesses are willing to pay for designs Virginia Postrel will rave about? Passenger Rail to allow creative people to think or nap or network during their commutes? Sure, but there are cheaper ways to provide the trains, and a complementary policy that makes the trains more attractive by making roads less pleasant will be a tough sell.
Provocative, worth reading, probably better at anticipating the outlines of what will follow than at providing a plan for getting there.
(Cross-posted to Cold Spring Shops.)