Thursday, August 12, 2010

Is This Really "The Roadmap to a High-Speed Recovery"?

Richard Florida is back peddling his peculiar brand of economics.

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.

Florida claims that we are in "a techtonic transition" as "our industrial economy gives way to a post-industrial knowledge economy". He writes as if this were a natural and inevitable occurrence. Look at the rust-belt -- it collapsed while high-tech cities and government-supported cities boomed.

But none of that was foreordained; it was the result of governmental monetary and fiscal policy. High government spending started under LBJ combined with Nixon's closing of the gold window led to a severe drop in the value of the dollar. The resulting inflation and lack of growth led to capital starvation of the old manufacturing base in the Northeast.

What capital there was flowed to newer industries that commanded higher profits; and and the never-ending march of government spending led to state and federal capital boomtowns. Nothing unexpected (or inevitable) there.

Florida seems to have a very superficial understanding of how the economy works. His series of books on the "creative class" have inspired dozens of cities across the country to embark on expensive, urban-amenity projects designed to attract young, hip entrepreneurs. They will, he maintains, help to create the future economy just as they have in Silicon Valley.

Never, though, does he mention fixing the mundane problems of high labor costs, the regulatory burden or excessive taxation. Can highly-taxed Buffalo, for example, really compete with low-tax but liberal and hip Austin? Should the good people of Michigan pour even more of their tax dollars into arts subsidies and high-speed rail in the hope of attracting the young and ambitious -- even though they stand little chance of ever turning a profit there?

Florida ignores the question.

The creative class, if such a class even exists, isn't stupid by definition. They want to make a nice living and they're savvy enough to know where that's more likely. And where they go, good things do tend to follow, but Florida and his followers ignore cause and effect. Nice cities are a result of economic prosperity and not the cause.

Mr. Florida follows a now twenty-year tradition of declaring that we've entered a new age. Since the nineties, we've been told that the "new" economy is upon us: one based on information (and more lately, greenness) and that manufacturing is passé. But this is really nothing new at all.

The increased use of computerization and the resultant data (information!) is the logical progression of capitalist production that is constantly lengthening the production process by the introduction of new processes and steps, each designed to produce consumer goods for less cost. Now, information is no more important now than it was in the nineteenth century (perfecting the first hay bailer, for example, took copious amounts of information) -- it's just that today information is more plentiful and easy to obtain.

We don't need, as Florida suggests, a massive new policy of promoting the information economy, we need only get the government out of the business of hindering capital formation through bad monetary policy and confiscatory rates of taxation. We can take care of the rest.

The information will flow like never before and, to the surprise of many, we might even see that the rumors American industry's death have been greatly exaggerated.

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