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September 24, 2007

Richard Florida

The Great Divergence

« Abolish Iowa? | Main | What a Mind Blower »

Great_compression_2

This picture really is worth a thousand words. But do look at Tyler Cowen's comments on Paul Krugman's original post.

My own two cents is that this shift, like the one before it (the long gilded age) is a consequence of a major economic shift, in this case the shift from the industrial to the knowledge-based or creative economy.  I date the emergence of the modern creative economy at roughly 1980. Since that time the US has created roughly 20 million jobs in the creative sector of the economy - everything from science and technology to arts and enterainment and the professions.  Such major shifts, as Marx and Schumpeter long ago argued, open up whole new industries and whole new sources of wealth. Left to their own devices, economic divergence is a natural consequence.

New institutional arrangements are required to bridge these gaps. In the post-World War II world it was mainly about unions and social democracy.  Like them or not, such institutional arrangements worked because they allowed the top to expand while the bottom gained some share of economic prosperity.  And like them or not, there is no going backward here: The old post-war institutional landscape simply will not work in the creative age. But one thing is obvious: "Lopping off the top" would be an unmitigated disaster, stopping economic growth in its tracks.

The great unanswered question of our age is what will do the trick - what kinds of institutions can square the proverbial circle in the creative age, enabling the peaks of the creative economy to expand while pulling up its valleys. The alternative is not pretty.

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Comments

Michael Wells

I don't have any problem with either Richard's or Krugman's analysis, but a couple of comments.

The chart shows the top 10% of earners, for individuals this is $75,000 a year so this isn't the aristocracy. Krugman's article then talks about the top .1%, which is a very different story.

Second, a lot of the economy in the first 1/3 of the 20th century was agricultural and small farms. For many people, cash income wasn't as all important as today because they had food and shelter. My grandparents were all country people, had gardens and canned, hunted for food. The picture today is very different, everyone is in the money economy. Someone living in or near a city on $10,000 needs to pay rent, buy food, etc.

Jerry Yarnetsky

First, I think unions are still the answer in the literal sense because the needs are still the same-- a collective voice for those providing the labor. However, the methodology needs to move from the perceived effort of blocking change to facilitating change. "You pay us our worth and treat us with respect and we'll work creatively with you to maximize your profits."

Second, universal health care. Universal coverage would provide entrepreneurs personal security to risk startups and it would free individual businesses from the vicious cycle of spiraling costs. How nice would it be to worry about business instead of employee benefits? Indeed, I am surprised that the business community has not begged the government for UHC as a means of becoming internationally competitive and amplifying the bottom line.

Chris

Florida writes: "In the post-World War II world it was mainly about unions and social democracy. Like them or not, such institutional arrangements worked because they allowed the top to expand while the bottom gained some share of economic prosperity. And like them or not, there is no going backward here: The old post-war institutional landscape simply will not work in the creative age."

Concretely, I am unsure of what this means. Of course, the US, like every other advanced nation, still retains various social democratic entities. When one argues that the "old post-war institutional landscape" of unions and social democracy "will not work in the creative age", this sounds to me like an overt and explicit argument for the complete and immediate privatization of the meager remnants of an already circumscribed American welfare state. Is Richard Florida arguing that Congress should get busy and start dismantling Social Security, Medicare, Medicaid, and the limited remaining existing regulatory regime? Or is that taking the statement too literally? If these statements do not imply privatization, then what do they mean? But this to me is in fact the problem: the devil is in the details. We need to deal in terms of policy specifics - the realm in which real people in the real world live their day-to-day lives - instead of the comfortable academic world of vague platitudes and fuzzy pieties.

Charles Rostkowski

Jerry, Universal Health Care (UHC) would not be free at all. If the government were providing the care, new taxes, particularly on the rich and business class, would be levied to finance UHC. So the business and entrepreneural class would end up paying the taxes that would effect their bottom lines anyway. (Although I'm sure they could easily figure out ways to avoid such taxes--egahd, that would mean more lawyers!!). And UHC would create a two tier system: some doctors would simply set up a private practice for those who could pay cash up front while the rest of us would be relegated to the UHC system where we would have to take a number to recieve anything other than emergency care. Of course, the government could force all doctors to participate in the system, but that would put a substantial damper of any creativity in medical science. Under such a system who would go to medical school? Not our brightest, I suspect!

Jerry Yarnetsky

Charles, first go Google "toyota ontario health care" and report back what you see. There are reasons they invested 800M north of the border.

Second, our health care system already has lines and waits. If you were a woman, you'd find out how long waits are for mammograms. My wife regularly waits months for specialists and sometimes weeks for her family doctor. When she gets there early for her appt. she still waits hours.

Third, the point isn't higher taxes -- I can't count the number of people I know who already pay 1/3 to 1/2 of their paycheck for family coverage through work. The point is having a guarantee. When you know the tree is strong and the branch is thick, you'll climb out on a limb to accomplish something great. If there's no tree there to begin with you're stuck in your day job just because "you have to have insurance."

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