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The Great Recession, and now ‘The Great Reset’

Marketplace Staff Aug 3, 2010

The Great Recession, and now ‘The Great Reset’

Marketplace Staff Aug 3, 2010


Kai Ryssdal: Treasury Secretary Timothy Geithner had an op-ed in the New York Times today. He said, in pretty much this many words, that the recovery iss basically upon us. Yes, there are some rough patches yet to come, but the economic handwriting’s on the wall and Mr. Geithner likes what it says.

Richard Florida is not so sure. He’s a professor at the business school at the University of Toronto. He makes the case in his most recent book, “The Great Reset,” that we are in this recovery for the long haul.

Richard Florida, welcome to the program.

Richard Florida: It’s great to be with you.

Ryssdal: Where are we in this reset? I mean, have we gotten anywhere?

Florida: I’m not so sure. And I mean, when I read Paul Krugman saying, this looks like a third depression, it helps confirm some of my own priors. I was able to look back at the two previous economic events that are analogous to this one — the Great Depression of the 30s and then the panic and long depression of the 1870s, 80s and 90s. And what I was able to figure out is that these kinds of crises are generational events. They are two to three decade events from really the nadir of the economy to a bounceback. So, I think we’re moving in from phase one, which is the shock of understanding that we’re in something very different than a typical business cycle downturn. And I think we’re finally understanding that this isn’t going to uptick as easily as many people thought. And government stimulus isn’t going to magically recreate economic prosperity, that we’re going to have to dig a little deeper.

Ryssdal: Well, let me pick up on that. If we are in the early stages of a generational shift, what are we supposed to do? First of all, as individuals, what do you do, how do you get through this?

Florida: Well, you be smart. So I think there are two things that happened. One, I think is that as an economy, instead of speculating and pouring money into real estate speculation or stock market speculation, in the course of the economic crisis, in a reset, we begin to focus our money on real improvements and productivity, firms get more productive, and we get a wave of innovation. The second thing is that we not only improve productivity, as this goes long over the course of the decade or more. We also begin to consume differently. We begin to save a little more, and we begin to shift the nature of consumption. And I think one of the things that Americans have to understand, we’re not going to recreate an economy anymore around houses and cars and energy. If we’re going to build an economy that’s sustainable, it’s going to have to be built around new technology, a more skilled development, a higher educated population, more human capital — what economists call it — and also consuming new kinds of things, from technology to better education to less material goods and to more experiences.

Ryssdal: What about the things, though, that came to characterize this economy in the past 10 or 15 years. The great wealth disparity and the disappearing of manufacturing jobs and outsourcing — how do we recover and then build something new from what used to be?

Florida: Our labor market is bifurcating, it’s splitting. We have on the one hand, 30 or 40 million high-paid knowledge jobs that have actually experienced low rates of unemployment, 4 or 5 percent. On the other hand, 65 million low wage jobs in services — that’s home health care aids, personal care assistants, food preparation and service workers, retail clerks, office workers. We’ve got to make those low wage service jobs good jobs. And the way we’re going to make them good jobs is we’re going to have to get down to the hard business of improving inefficiency, productivity and innovation. And most importantly, we’re going to have to pay just a little bit more, to get quality services and pay Americans a living wage.

Ryssdal: Yeah, but when you talk about productivity and increased efficiency, the person running the finance department in the Acme Widget Company hears “we need to do more with less, we need to squeeze our workers more, we have to ramp things up and really increase the tension and the pressure.” That does not sound like a net positive thing.

Florida: And this is what gets an economy into crisis every time. It’s a classic collective action problem, a race to the bottom. So what we need is as an economy is a new social compact. And maybe, over the course of this two or three decade reset, we’ll learn that instead of pushing workers to the brink, instead of outsourcing everything, we can use our workers effectively, maybe we can pay people more and to engage them more fully and hopefully, we’re going to be able to — we’ve done it before — invent a new, more productive economy, but a new social system, which provides are better living and a better life for Americans.

Ryssdal: Richard Florida, his most recent book is called “The Great Reset.” Richard, thanks a lot for your time.

Florida: Thank you, it’s been great being with you.

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