Category: news

American capitalism is broken, and in the race to fix it there is a lot of prognosticating about what will work, what won’t, and what things will look like after this crisis passes. One of the best things I’ve read in the latter category is Richard Florida’s article, “How the Crash Will Reshape America,” in the March 2009 issue of The Atlantic Monthly.

It’s a very long, in-depth analysis and rewards a full, careful reading; but since I suspect you’re not going to do that, let me sum up. Most of the article argues that industrial centers like Detroit are doomed in the long run, and that population-dense areas with diverse economies, like New York, will thrive, based on a notion of the “velocity of ideas” that such places generate, which may sound a little vague but rings true for me.

The article holds up Pittsburgh as a model for successfully managing the transition from a large industrial economy to a smaller idea-based one, and it wraps up with some prescriptions for managing this crisis to a comparatively soft landing. The most compelling suggestion the author makes is for “the removal of homeownership from its long-privileged place at the center of the U.S. economy.” Its benefits aside, homeownership creates economic ills of various kinds: for example, it anchors people to a region that may be in economic decline, producing a “creeping rigidity in the labor market,” when those people ought to be mobile and able to go where the work is. Further, government incentives encouraging homeownership distort demand, producing, for example, speculative bubbles of the kind we’ve just seen pop.

Richard Florida would rather see government policies favoring property rental, and calls the current tidal wave of foreclosures an opportunity: banks could be required to rent a foreclosed home to the erstwhile owners at the prevailing market rate (typically much less than a mortgage payment). This would achieve the goal of keeping families from ending up on the street, in a less artificial way than prohibiting foreclosures would. Just as importantly, it provides a basis for valuing some of those “toxic assets” you’ve heard so much about.

Digression: a big part of the problem in the financial world right now is that years of bad lending decisions have led banks to accumulate a lot of worthless assets on their books — worthless in the literal market sense that no one, no one wants to buy them at any price. In the absence of at least a potential buyer, it is literally impossible to compute a value for an asset, and in the absence of some way to place a value on those assets, banks will sooner or later be forced to “write them down” — to admit they’re worthless and that the bank as a whole is worth a lot less than before. If the bank’s assets shrink enough, its liabilities may overwhelm it, at which point it becomes insolvent.

This is one reason why compelling banks to turn foreclosed homes into rental properties is so attractive: in many cases it guarantees a stream of rental income from the property, meaning that the property now has a non-zero value even in a glutted real-estate market where the house itself can’t be sold.

I am a somewhat reluctant homeowner. Having grown up in New York City, renting was always the norm, and I never felt the urge to own my own home. But after a few sour landlord-tenant episodes, and after we made some money in the dot-com boom, and after our first son was born, Andrea got the homeowning bug and I went along — mainly because, even though renting had always been the norm, there was always lip service paid to the unalloyed good of property ownership.

I cottoned at once to Florida’s repudiation of this idea, but if we’re going to transform ourselves from a nation of hopeful homeowners to one of eager renters, there are some things about rental that we’ll have to make less painful. Here’s a short list of rental pain points that I’d want addressed if I were going to take that step myself:

• Rent control (though unfortunately, when economists agree, the thing they agree about the most is that rent control is bad)
• Ample notice of lease non-renewal or significant changes in lease terms
• Authority to hire approved vendors for basic maintenance

Since I would expect to move more often as a renter, I’d also want a more robust and economical network of storage and moving services than exists today; but in a successful transition to the rental-oriented new-urban utopia of tomorrow that should follow naturally. I can’t wait.

Today newspapers and blogs are full of praise for Chesley Sullenberger, pilot of US Airways flight 1549, and his crew, and the rescuers who saved every life aboard that plane when it ditched in the Hudson yesterday. And rightly so: Captain Sullenberger had just moments to make a difficult decision, and he made the right one; and then he executed a flawless water landing while superb coordination of resources on the ground meant that several watercraft were almost immediately on hand to pluck the survivors from the icy river. Kudos all around; a tickertape parade would not, in my opinion, be unjustified.

But if all the lionization today and the talk about heroism and miracles seems a little too breathless, I blame — who else? — George Bush. This impressive display of can-do professionalism comes in the final hours of an eight-year interregnum marked primarily by no-can-do incompetence.

You couldn’t ask for a more vivid way to throw the past eight years into sharper relief. America, we were always taught, was the land where an abundance of know-how and elbow grease could defeat the Axis, put a man on the moon, create a succession of world-changing technologies, and be a beacon of justice, progress, and courage for the whole human race. Yet for most of this past decade we’ve witnessed fear dominating our policymaking, the loss of a major American city through neglect, the destruction of our present and much of our future wealth (and the crippling of our very system for generating new wealth), stagnation in the sciences, official disregard for the law, our international alliances in tatters, an assortment of ecological crises growing more severe and numerous by the week, two disastrously mismanaged wars, an avalanche of doublespeak, and a much, much longer litany of abuses and failures than I can bear to put down here but which you can find enumerated in many essays and articles this week reflecting on the exit of the Bush administration. Bush used his farewell address to the nation to make petulant excuses for why things weren’t better under his watch.

That’s not America.

America is where a seasoned pro with a cool hand on the controls can set his disabled jumbo jet in the water and be met by dozens more seasoned pros with a plenitude of training and equipment to rescue passengers who were marshaled out of the sinking wreckage in an orderly fashion by an equally well-trained crew of professionals.

America is where the incoming president has lined up an all-star team of experts and achievers to help him govern, instead of what we’ve grown accustomed to: cronies, patrons, figureheads, and yes-men.

In short, America is where the people are competent. It’s been so long since that was the case, we’ve all forgotten what competence looks like, so that when we see it in action like we did yesterday in the Hudson River, it takes our breath away.

Think of how routinely our parents and grandparents got to see American competence in action, and how little this generation has seen of it. We’re right to laud Captain Sullenberger and the others as heroes, but we’d be wrong to place them on a pedestal. Theirs is the ordinary heroism we should expect from any American in a position of responsibility. If we’re to learn anything from the Bush administration, it’s never to let them lower our standards. No more setting the bar low. From now on, we demand competence.