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Sunday Train: Richard Florida and the End of the Automobile Age

by BruceMcF Sun Aug 15th, 2010 at 06:52:12 PM EST

Burning the Midnight Oil for Living Energy Independence

Due at Agent Orange Wednesday, 5pm EDT

This week in The New Republic, Richard Florida presented his vision of High Speed Rail as the central strategic point of leverage in an economic "reset" to get us out of the doldrums resulting from the failure of the 20th century growth model to deliver ongoing, sustained growth any more ... though the way he frame it is:

As dismal as housing prices continue to be, they have yet to hit bottom in some places. Unemployment remains frozen at an overall level of nine-plus percent, and job creation has been anemic. If the crisis belonged to George W. Bush, the recovery has been Obama's--and it has been a fragile and tentative one at best. Along with billions of dollars in stimulus payments, the president has spent down most of his political capital. So what is his next step?

So ... what is the next step?


This article is dated 12 August, and given the central role that Florida paints for High Speed Rail, has of course already been addressed by a number of others, including Yonah Freemark at The Transport Politic and Robert Cruickshank at the California HSR Blog.

Florida's thesis:

  • The Economic Growth Engine that dominated the post-WWII US economy generated a form of geographic Keynesianism
  • This Economic Growth Engine has reached its end
  • We must therefore turn to a Growth Engine based on Innovation
  • Innovation is fostered by clustering
  • So the Economic Geography of the Next Growth Engine will be emerging national Mega-Regions
  • High Speed Rail is uniquely suited to connect the distinct cities of a Mega-Region together, so High Speed Rail is the strategic linchpin of launching the Next Growth Economy


The End of Keynesianism and Beginning of Fantasy

There is much that is right and much that is wrong in Florida's argument. One of the signal failings of the story as he presents it is presenting the 20th Century Growth Engine as some kind of natural force, ignoring the substantial entrenched policies that channeled it down the particular paths it took.

And this is strategic for Florida's argument about the nature of the Next Growth Engine, since if these things are natural forces, the projection of the Next Growth Economy from the trends of the twilight of the Automobile Age is straightforward. For example, if:

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. Between 1980 and 2006, the U.S. economy added some 20 million new jobs in its creative, professional, and knowledge sectors. Even today, unemployment in this sector of the economy has remained relatively low, and according to Bureau of Labor Statistics projections, is likely to add another seven million jobs in the next decade. By contrast, the manufacturing sector added only one million jobs from 1980 to 2006, and, according to the BLS, will lose 1.2 million by 2020.

This reads as if this just happened, rather than being made to happen by pursuing policies of de-industrialization, and by accepting policies with de-industrialization as a natural consequence, whether promoting the power of transnational corporations with mis-named "trade" agreements that primarily focus on the freedom of corporations to exercise corporate power across national borders, or the "fight inflation first" strategy of the Fed that biases the US exchange rate against the interest of exporters and toward the interests of importers, all the while their primary target is the prevention of full employment.

By stereotyping manufacturing as Fordist mass production, and setting it in opposition to the Knowledge Economy, Florida sets up a false dichotomy where Knowledge-Intensive Manufacturing disappears from view, and so does not have to be considered as a target for national industrial policy.

The story Florida sketches regarding the post-WWII Fordist Growth Economy is, of course, only partial, but is broadly correct.

  • There was a wave of investment in Road Infrastructure by state and especially local governments in the 1920's, and its ebbing was part of the sagging national income that exposed the financial fragility of the late 1920's
  • Federal Investment in Road Infrastructure picked up in the 1930's, providing part of the foundation for the post-WWII wave of suburban development
  • That wave of suburban development was financed in a way that permitted the further finance of automobiles, refrigerators, stoves, furniture,
  • and the income from the manufacture of that whole complex of products helped fuel the ongoing development of the suburbs.

However, Florida skips an important part of the story, which is the system of cross-subsidies that helped fuel that system by channeling income from urban and rural households into the development of sprawl suburbia. A fairly well known example is the Federal gas tax, which many Americans imagine to be a user-pays system for funding roads. In reality, all motorists pay the tax, whether or not their driving is on funded "highways". The majority of city streets are ineligible for funding while a majority of Interstate, National, State, County and Township "highways" on their periphery are eligible for funding, so that in the 1950's, this was a strong cross-subsidy from the urban and pre-WWII inner-suburban majority to the "new suburban" minority.

But this is, of course, only the tip of the iceberg. When utility hook-ups are priced by a flat rate rather than by the cost of providing the hook-up, that represents a substantial subsidy to sprawl development. When zoning imposed required minimum parking, the value taken from the property owners depends on the value of the underlying land, so the "in kind" tax imposed on landowners to subsidize cars with the parking they require is substantially higher in urban and inner suburban areas than in greenfield outer suburbs. Households living in unincorporated area (study area is Wisconsin) tend to receive more of their services from the county where they are located. Direct and tacit subsidy of logging, through undercharging for logging rights and provision of logging roads, implied an undervaluing of the value of existing durable urban structures versus new stick-frame detached housing.

What is the difference if we recognize these cross-subsidies of sprawl suburban development? The basic logic of cross-subsidies is to promote growth of the subsidy recipient at the expense of the subsidy payer, reducing the share of income contributing and increasing the share of income sharing the cross-subsidy. A Growth Engine based on cross-subsidy is destined to eventually run out of gas.

And then, of course, we ran out of gas ... starting in the late 1960's when we hit peak oil, the system of stabilizing US crude oil prices by manipulating production in the big Texas oil fields went by the boards, and the Automobile Age was exposed for the first time to the vagaries of the international oil market ... and after sprawl suburbia had captured over half of the US residential population, placing its flow of cross-subsidies at risk, we reached the neighborhood of global peak oil production, at a time that we consume a quarter of the world supply but only while we still produce a tenth of the world supply.

A gasoline price shock of a mere $4/gallon was one of the three forces contributing to the Panic of 2008: a serious gasoline price shock or an interruption of crude oil imports would have an even more devastating impact.


The Optical Illusion of Interstate Highways

Now, the Interstate Highway System, while not the majority of the cross-subsidy for sprawl development, were an integral part. But for passenger transport, "Interstate Highway" is a misnomer. The bulk of the passenger miles on the Interstate Highway system are local passengers, not interstate passengers.

Where the "Interstate" nature of the Interstate Highway system is dominated by interstate transport is in freight transport.

Yet, while Florida gives lip service to freight ...

That means high-speed rail, which is the only infrastructure fix that promises to speed the velocity of moving people, goods, and ideas while also expanding and intensifying our development patterns.
... it is only lip-service. The focus is on all the entrepreneurs coming into the Megaregional Hub to work out how to provide innovative services to each other and consumers, which services will somehow generate the export revenue to allow all of us to import all of the industrial and consumer goods that we require.


Fleshing Out the Skeleton

So, does HSR offer the opportunity to be the "Reset" technology to allow us to restructure our economic geography on a long term sustainable basis?

Well, any long time readers of Burning the Midnight Oil  or others who know me as a long time advocate of HSR will already be expecting my answer: No, of course not. Setting up High Speed Rail as "the" answer to anything is setting it up to "fail" to meet a poorly thought through target.

On of the reasons why "Auto Uber Alles" required heavy cross-subsidy to grow is that it was a "one-size-fits-all" solution. And one size never fits everyone, and never fits many people all that well.

High Speed Rail is a useful part of the mix and, as I have long argued, is the part of the mix that we can get working on right away, given the fact that High Speed Rail has repeatedly shown its ability to generate operating surpluses, even under Automobile Age conditions. That makes HSR a strategic "leading edge" of the new transport system that we shall require for this new century.

However, we must not make the mistake of trying to "re-fight the last war": High Speed Rail corridors will not be providing the bulk of passenger transport, nor will they be providing the bulk of freight transport. Their superior capital efficiency compared to the same intercity passenger transport capacity provided by roadworks is due to the fact that HSR does not try to be a magic "silver bullet" one-size-fits-all solution, rather focuses on being the efficient solution to the problem it solves.

Indeed, despite Richard Florida's focus on innovation, one reason that High Speed Rail looms so large in his vision of the new 21st century is that in High Speed Rail, the essential technical innovations required to allow us to start building have already been made, and there is very little social innovation required. Florida is, in other words, projecting an existing technology into the future.

In local transport, more social innovation is required to reach the point of painting a compelling grand sweeping vision of how we will get from our current, obsolete, system to one that will meet the needs of our new century. So, although this is a more important challenge for our day to day standard of living in 2020 or 2050 ... it is a far less question to consider for those who specialize in painting grand sweeping visions.

And the idea that we will simply abandon making things that do useful things is a fantasy from the twilight of the Age of the Automobile. It rests on the neo-mercantelist strategy of China and others to accept lower terms of trade in return for being allowed to export potential unemployment to the US. The credit creation required to maintain a discounted ¥RMB to US$ exchange rate has been an important part of the credit creation that has been papering over the fading income-generating capacity of the post-WWII Growth Economy.

However, this is also an imbalanced and ultimately unsustainable process. In a sustainable system, our standard of living will depend not on the creation of credit in China, but in the creation of goods and services of value to our own economy and to potential trade partners overseas. Pre-emptively hobbling our capacity to produce valuable products by continuing to engage in aggressive de-industrialization is the path towar being a poorer nation in the future than we need to be.


Midnight Oil ~ Blue Sky Mine

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... indifferent to the end of the Automobile Age?



I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Aug 15th, 2010 at 07:01:33 PM EST
You quoted Richard Florida:

Our transition from a Fordist mass production economy, based on the assembly line, to a knowledge economy...[snip by DoDo]
This reads as if this just happened, rather than being made to happen by pursuing policies of de-industrialization, and by accepting policies with de-industrialization as a natural consequence, whether promoting the power of transnational corporations with mis-named "trade" agreements that primarily focus on the freedom of corporations to exercise corporate power across national borders, or the "fight inflation first" strategy of the Fed that biases the US exchange rate against the interest of exporters and toward the interests of importers, all the while their primary target is the prevention of full employment.

Or, to put it another way: trade imbalances make a national economy a fantasy; the Fordist mass production economy is alive and well, it just exists on a larger scale, with the assembly lines relocated to China.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Aug 16th, 2010 at 02:16:39 PM EST
... the benefit of knowledge about how to improve that assembly will mostly accumulate in China.

"Knowledge" is not some free floating putty that just takes an "educated entrepreneur" to turn it into magic value added ... it is normally embedded in equipment and skilled workforce.

Richard Florida actually says that in addition to teaching reading, writing and maths, American schools should also teach entrepreneurship. As if the normal American school was presently teaching reading, writing, or maths.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 16th, 2010 at 03:31:49 PM EST
[ Parent ]
Ah, but knowledge economy is not about production it is about branding, intellectual property and making the producers accept that most of the income from what they produce goes to highly paid symbol analysts in the west. Oh, and about branding of copyright, patents, trademarks, design patents etc as intellectual property to make it fit into the dominant narrative.

I heard something about a country having a revolution some two hundred years ago against absentee ownership and taxation without representation. They must not have understood the finer points of the absentee economy.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Mon Aug 16th, 2010 at 04:06:53 PM EST
[ Parent ]
Oops, sorry, maybe I was talking about the "Information Economy" ... anyway, the economy where knowledge is used to provide material support to societies activity.

There is, indeed, that economy of subdividing and slicing and dicing existing income streams to various "Intellectual Property" owners ... but without an actual income stream to slice and dice, its like froth with no beer.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 16th, 2010 at 05:36:31 PM EST
[ Parent ]
Let them eat knowledge!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 16th, 2010 at 10:26:56 PM EST
[ Parent ]
It could be that he is talking about but with quotes like this I doubt it:

The Roadmap To A High-Speed Recovery | The New Republic

Between 1980 and 2006, the U.S. economy added some 20 million new jobs in its creative, professional, and knowledge sectors.

Especially if we compare with the metric used in the transition to post-ww2:

The Roadmap To A High-Speed Recovery | The New Republic

By 1940, the number of people employed in R&D had quadrupled, increasing from fewer than 7,000 in 1929 to nearly 28,000 by 1940, according to the detailed historical research of David Mowery and Nathan Rosenberg.


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Tue Aug 17th, 2010 at 09:08:39 AM EST
[ Parent ]
But that's not 20m in R&D ... its all "creative, professional and knowledge" sectors. People employed part time at $18 per contact hour to teach students conned into going into debt on their student loans to pump up the profitability of private two year business colleges are part of that 20m, for instance.

Look at the growth in employment in "creative, professional and knowledge" sectors in the US from 1945 to 1960, as a percentage of the workforce, and the comparison will not seem nearly as dramatic as 21,000 in 11 years versus 20m in 25 years.
 

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Aug 17th, 2010 at 12:19:24 PM EST
[ Parent ]
I was not comparing the numbers, they just followed with the quotes.

What I meant was that the metric "employment in creative, professional and knowledge sectors" looks to me to be measuring capturing of the production profits through enforcement of various IP-rights. It could be development of production, but when compared with the metric of R&D in R&D labs connected to production as measurement of the post-war eras manufacturing society, I think it is clear that it is not R&D connected to production that he focuses on now.

I would argue that todays IP-funded capturing of production value is the mirror of the outsourcing of the actual production. Through treaties like TRIPS the countries that now houses the manufacturing has been made to accept (for the time being) that a big piece of the value is captured by western design firms. I think this will end soon after the outsourcing trend ends. When China has all the production why accept it?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Aug 17th, 2010 at 01:56:58 PM EST
[ Parent ]
One the main argument, I have nothing to add just applaud. In particular the cross-subsidy arguments; I didn't realise that suburban sprawl had tax-related incentives, too.

But for passenger transport, "Interstate Highway" is a misnomer. The bulk of the passenger miles on the Interstate Highway system are local passengers, not interstate passengers.

Gives me an idea. Every time I have to explain to someone that a USA-wide (EU-wide) HSR network is not built for LA-NYC (London-Moscow) trips, but will still see most traffic on shorter distances (with the possibility of long trips as an extra feature of linking up shorter sections), I could refer to the Interstate parallel.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Aug 16th, 2010 at 02:34:23 PM EST
... there are also local tax holidays for establishment of industrial parks, the Federal provision that capital gains from property development can be rolled over, which encourages successful property developers to look for an even bigger project to work on the next time, as well as the deduction of mortgage interest from taxable income.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Aug 16th, 2010 at 03:35:01 PM EST
[ Parent ]
From Wiki:

Richard Florida (born 1957 in Newark, New Jersey) is an American urban studies theorist.

Professor Florida's focus is on social and economic theory. He is currently a professor and head of the Martin Prosperity Institute at the Rotman School of Management, at the University of Toronto.[1] He also heads a private consulting firm, the Creative Class Group.

Prof. Florida received a PhD from Columbia University in 1986. Prior to joining George Mason University's School of Public Policy where he spent two years, he taught at Carnegie Mellon University's Heinz College from 1987 to 2005.


Absolutely amazing what an Ivy League PhD will get you. One can only wonder what sort of economic theory he focused on. His Masters and PhD are in urban planning from Columbia. C.V. didn't say anything about economic analysis, however.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Aug 17th, 2010 at 12:15:32 AM EST
That is a good question, and while I can't answer that one specifically, I do know that his recent work, including his new book The Great Reset, has been influenced by David Harvey.

The book itself is pretty good (and I cited it several times in my article at the CAHSR blog that Bruce linked to above), partly because you can see where Harvey's ideas have seeped into Florida's analysis.

However, it's incomplete; Florida isn't a Marxist, even though he does denounce the FIRE economy and "automobile Keynesianism" in very strong terms. As DoDo noted, Florida is too quick to see major economic dislocations as forces of nature, and isn't sufficiently critical of concentrated wealth. And his Great Reset concept, while something I quite strongly agree with, doesn't really lay out a clear vision of what our economy should look like once the process is complete.

Which is what I'm going to attempt to do in a book proposal I'm currently working on with a publisher here in California. More on that later.

And the world will live as one

by Montereyan (robert at calitics dot com) on Tue Aug 17th, 2010 at 11:51:25 AM EST
[ Parent ]
As DoDo noted

Not me, BruceMcF!

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Aug 17th, 2010 at 02:11:37 PM EST
[ Parent ]
Shhh, I've got enough credit for things I learned from you, spillback is fair enough.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Aug 17th, 2010 at 02:41:00 PM EST
[ Parent ]
Yikes! Sorry about that, both of you.

And the world will live as one
by Montereyan (robert at calitics dot com) on Tue Aug 17th, 2010 at 04:26:14 PM EST
[ Parent ]
Ha! Apologize to DoDo, I'll take the mistake as a compliment.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Aug 17th, 2010 at 04:37:58 PM EST
[ Parent ]
There's not that much difference between Fordism and web-developer-ism. Temporary workers with no benefits, low pay, and zero job security, using standardized methods to make routine changes to the thousands (millions?) of commercial web sites out there...
by asdf on Tue Aug 17th, 2010 at 10:21:43 PM EST
Under Fordism, they were permanent employees organized into unions with some real, albeit limited, power, with pension and benefits as the quid pro quo for eliminating the inconvenience of penalty rates for overtime.

That would seem a pretty sweet deal to the web-developer assembly line workers. There the inconvenience of penalty rates for overtime is more often fixed by paying pro forma hours with completion of task required to hold onto the job, irrespective of whether actual time required is overtime or not.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Aug 18th, 2010 at 01:53:40 PM EST
[ Parent ]
Ford paid well enough that his workers could afford to buy his cars. That meant that the could also afford housing and food. That meant that every job at Ford led to three or four jobs elsewhere in the economy. Web developer cottage industry workers probably don't generate the same multiplier effect. Do you have any numbers on that?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Aug 18th, 2010 at 02:48:41 PM EST
[ Parent ]
... multiplier has dropped substantially, largely because of the substantial increase in the import share of total consumption. I don't know off the top of my head of industry specific studies of multiplier effects, but there may be something by income level that could be tied back to industry level studies of income distribution.

So, no, I don't know but its a great question. As far as I can tell, Richard Florida gets his causality from rough correlation of a "Knowledge class" that does not seem to be very clearly defined independent of his line of argument.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Aug 18th, 2010 at 03:13:36 PM EST
[ Parent ]
The subject would seem ripe for some macro economist to investigate.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Aug 18th, 2010 at 08:27:21 PM EST
[ Parent ]
The credit creation required to maintain a discounted ¥RMB to US$ exchange rate has been an important part of the credit creation that has been papering over the fading income-generating capacity of the post-WWII Growth Economy.

It seems that another, larger portion of recent credit creation was that created during the real estate bubble.  The only real benefit from this bogus credit was  the money extracted for consumption from the bogus increase in value of that real estate. The drop in real estate values that has occurred in the US is inherently deflationary and the debt based money that has been created to replace the lost counterfeit wealth has been of limited effectiveness in restoring the economy because it has not gone to productive uses. Instead, it has been used to paper over the losses of the TBTFs on their fraud and bad bets. It has been used to hide the problems rather than to resolve the problems. Too many people understand this for there to be any real confidence in the existing system.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Aug 18th, 2010 at 11:30:38 AM EST
One thing to note: 1 in 6 US worker is directly or indirectly dependent on the automobile.  As this "Car Sector" shrinks those jobs must decline in tandem.  The danger, here, is gutting of one of the last remaining US manufacturing infrastructure and know-how sectors.  

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Fri Aug 20th, 2010 at 11:15:40 AM EST
That is a certainty.

There is a general problem with the strategy of hanging on to the industrial development successes of previous generations and never trying to develop a new industry ... different people weigh the bird in the hand versus the bird, or two, or twenty birds in the bush differently.

This is a more specific industry-specific problem. Peak Oil when it hits hard will slaughter the automobile industry, so irrespective of someone's attitude on the spectrum of "bird in a hand vs two in the bush" ... this is a bird in the hand that is not going to be there for us twenty years from now.

The question is how to create new industries, as previous generations did, and as we in the US stopped doing from the 1980's on.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Aug 20th, 2010 at 12:27:44 PM EST
[ Parent ]
1 in 6 US worker is directly or indirectly dependent on the automobile.

But a majority, at least, of those workers are involved in aspects other than the internal combustion engine. There will remain a need for personal transportation vehicles until and unless we reconfigure our urban landscapes for mass transit.

What matters is not the eventual transition but the speed of the transition compared to the speed of the impact of peak oil. Transitioning to battery driven electric vehicles powered by wind and solar thermal energy could allow the existing 1 in 6 to remain employed while providing a large boost to capital spending, which is highly stimulative, and permanently reducing our need for foreign oil. It would also create a significant number of permanent, domestic high wage jobs in the energy sector.

If we can largely transition to self sufficiency Modern Monetary Theory can deal with the costs much more easily. But we still need to deal with the oversized, life draining financial sector. One last round of above ground n.........NO! surely we can do better than that, can't we??

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Aug 20th, 2010 at 03:13:05 PM EST
[ Parent ]


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