Sunday, February 22, 2009

The Recession and Economic Geography

Richard Florida's big article in The Atlantic about the recession's impact on economic geography is decent enough, though not terribly original. If you're already familiar with Florida's work, you won't find anything new. One frustrating aspect of the article is that Florida constantly conflates the changes he wants to happen with the changes that will happen. A particularly glaring example comes near the end of the article. First, Florida states what he thinks should happen—namely, policies aimed at increasing the number of renters and decreasing the number of homeowners:

The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.
A few paragraphs later, though, Florida states:
What will this geography look like? ... Its great mega-regions will rise farther upward and extend farther outward. It will feature a lower rate of homeownership, and a more mobile population of renters.
He obviously missed the step that explains why the policy changes he wants to happen actually will happen. He acknowledges that government policy has long stacked the deck in favor of homeownership, mainly through the mortgage-interest deduction and Fannie/Freddie. But he never suggests that these longstanding policies will be changed in any way—he doesn't say that the mortgage-interest deduction will likely be repealed, or that Fannie and Freddie will likely be dismantled. Nor does he suggest that the government will adopt a version of his rent-to-own proposal. Instead, he simply assumes that because these changes should occur, they will occur. And when it comes to housing policy, that's a very dubious assumption.


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