A year ago, I published a book that argued that, for all the privations and dislocations of the economic crisis, it also provides us with the opportunity to make fundamental changes in our economy and society. I characterized these changes as a Great Reset, and I found similar moments in American history when new economic orders arose from the ashes of old ones, ushering in new eras of growth and prosperity. Since writing the book, I’ve been able to see for myself what I’ve long suspected: that Great Resets unfold not from top-down policies and programs but gradually, as millions upon millions of people respond to challenging economic times by changing the ways that they live.  The economic crisis has taught us the hard way that we need to live within our means, to forestall debt; it’s made us understand that we don’t have to define ourselves in terms of material goods, that we can achieve a more meaningful and sustainable way of life.

In my travels across the country, I’ve heard from people who are in the process of resetting their lives.  Young people just out of college tell me that they don’t want their parents’ suburban lifestyle; they’d prefer to find an affordable rental apartment in a city they love where economic opportunities are better. They don’t want to go into hock buying a big house and a big car, just so they can endure a long commute. Young parents tell me they’ve had to defer their dream of buying a bigger house with a backyard, either because they can’t afford it or don’t qualify for a mortgage. Instead, they’ve decided to stay put and renovate their city apartment or fix up their small house in an older, closer-in suburb.  Empty nesters tell me they’ve decided to sell the big house, sometimes for a lot less than they could have gotten for it a few years ago, and buy a smaller condo or house closer to their kids in the city.  These shifts, brought on by economic exigencies, are already adding up to a gradual but enduring change in the way we live – one that will prove every bit as consequential as the move towards suburban living was in the 1950s and 1960s.

Watching the Reset unfold, it’s been fascinating to see how quickly the once great divide between our cities and suburbs has been shrinking.  The most desirable neighborhoods look increasingly similar, no matter where they are. The best urban neighborhoods are safe and have good schools; they are becoming strollervilles and toddler-towns, filled with families as well as singles. The best suburban neighborhoods have great commercial districts with restaurants, movie theaters, and all manner of amenities. As many of our cities and older inner-ring suburbs are being renovated and revitalized, the great challenge of our time – far bigger than urban renewal was in decades past – is to remake our many shoddily-built, far-off exurbs into denser, more- connected, more livable communities. Some of them—the ones that were built as much to keep the building boom going as because people needed to live in them—might be fated to shrink back into small towns or disappear altogether.

Gradually, our great complexes of cities and suburbs are being knit into mega-regions – giant city-states that are home to millions upon millions of people and generate billions and in some cases trillions of dollars of economic activity. Driving this is not just our individual choices and preferences but the very logic of economic development. Geographic concentration and clustering speeds the transmission of new ideas, increases the underlying productivity of people and firms, and generates powerful economies of scale.

This new economic landscape and emerging way of life won’t come together completely on their own.  As this book points out, all of this must be underpinned and supported by new kinds of infrastructure – from more efficient living patterns to more effective, less car-dependent transportation systems that run the gamut from more bicycle paths and sidewalks to improved mass transit and high speed rail. Just as government programs and policies underpinned the rise of suburbia in the 1950s and 1960s (think of all those subsidized highways), new public policies toward rental and affordable housing, alternative transport, and more sustainable energy will help encourage this shift today. But while individual Americans have already begun resetting their lives, our political and business leaders continue to look backwards, wasting precious time and resources on futile attempts to resuscitate the same dysfunctional system of banks, sprawl, and inefficient and energy-wasting ways of life that brought about the crisis in the first place. .

According to Bureau of Labor Statistics projections, the US economy remains on track to generate 15 million new jobs over the next decade. 6.8 million of them will be high-skill, high-wage work in the knowledge, professional, and technical sectors of the economy. The other half will be much lower-paying, low-skill work in the routine service sector of the economy. More than 45 percent of the US workforce—60 million workers—already do this kind of work, and they earn just half of what factory workers make—and only a third of what professional, technical and knowledge workers are paid.

If we’re serious about creating good, family-supporting jobs, we have no choice but to upgrade those service jobs and turn them into adequate replacements for the blue-collar jobs that have been wiped out.  We did it 70 or 80 years ago when we transformed manufacturing jobs from low-paid, dangerous work into high-paid jobs; we must do it again. Henry Ford long ago said that we needed to pay factory workers better so they could buy the cars they made.  If each of us pays just a little more for services, we can ensure millions of service workers a family wage and spur the broad-based demand that will help the economy recover. Don’t the people who prepare our food, take care of our kids and aging parents, and maintain our homes deserve decent wages? ?  Can’t we spend a little more to ensure a more equitable and prosperous society? It’s not a matter of charity; motivated workers are more productive; they’re also more creative and innovative.

Easy credit, limited bailouts, and targeted stimulus have simply created the illusion of growth, without beginning to address the structural nature of the crisis.  And much of what the Tea Partiers have been calling for—slashing taxes and cutting critical public investments—will only make things worse.  Our leaders just aren’t getting it; their mental models are so determined by the old order that they can’t acknowledge that it has already passed.

We need to break with the past and engage with the future that is already upon us.  There is no stopping this ongoing Great Reset. But left to its own devices it will unfold in a stop-and-start, trial-and- error fashion over the course of the next two, maybe three decades.  My hope is that this book can help us move more quickly down the path to real recovery, minimizing the pain and suffering faced by too many, and ushering in a new era of sustainable prosperity for everyone.

The paperback edition of the Great Reset is available July 5th.  You can get a copy online here.

Is America’s system of homeownership just a mirage?

That’s the question Wall Street Journal economics editor David Wessel asks. The graph below compares the the peak homeownership rate, the current rate, and the percent of homeowners with positive equity for 10 of the largest U.S. metro regions. Less than half of homeowners have positive equity in their homes in eight of 10 of these metros: In Las Vegas, the figure is less than 20 percent.

Felix Salmon has already pointed out the level of underwater mortgages poses economic problems as well as tremendous personal economic pain. But Wessel notes that the success of a country’s homeownership and home-financing systems should be judged not just in terms of what percentage of people own their homes, but how it performs in down times.

Wessel quotes San Diego State University housing economist Michael Lea as saying that the U.S.’s mortgage-financing system has fallen victim to two significant crises – the savings and loan crisis of a couple decades ago and the recent crash. Lea goes on to compare the U.S. to other countries with similar or higher homeownership rates; his conclusion: The U.S. is much more volatile and more often needs to rely on government bailouts to restore system functioning.

Wessel points out that the ability to constantly refinance homes and mortgage loans makes the U.S. system less effective and less stable.

Check out the graph above via Catherine Rampell at The New York Times Economix (blog). It compares job losses in the current downturn to five previous recessions going back to the mid-1970s. The patten of job loss is far, far deeper than in any previous period and has extended for more than two years. By the looks of the chart, it appears that deep job losses may have ended and the pattern may be ticking up. Let’s hope so.

This headline over at Bloomberg today – “Wall Street Cedes to Toronto’s Bay Street” – sure caught my attention. Here’s the gist.

Henry Michaels spent 25 years as an investment banker with New York-based firms such as Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Citigroup Inc. When the financial crisis deepened this year, he abandoned the struggling U.S. companies for a job at Royal Bank of Canada.  “In this crisis, strength and stability matter,” said Michaels, 48, who resigned as co-head of Citigroup’s banks and diversified financials group in May to join RBC Capital Markets in New York. “RBC is in growth mode, and it’s nice to be playing offense.”

Canadian banks, bolstered by their reputation as the world’s soundest, are adding investment bankers even after rivals slashed almost 316,000 jobs worldwide since the collapse of the U.S. subprime market in 2007, according to data compiled by Bloomberg.

Lenders including RBC, BMO Capital Markets and CIBC World Markets have hired more than 700 investment bankers, analysts and traders in the U.S. and Canada this year, including from rivals such as Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch and Citigroup.

“The profile of the Canadian banks on the global scale has been heightened exponentially over the course of the last year,” said Rose Baker, a managing partner in Toronto with executive recruitment firm Heidrick & Struggles International Inc. “They look more powerful and are able to attract talent that was historically not available to them.”

Canadian lenders, based in Toronto’s financial district known as Bay Street, have remained profitable amid the crisis because of tighter restrictions on lending and higher capital requirements. As a result, Canada’s biggest banks posted about $20.4 billion in writedowns and credit losses since 2007, a fraction of the $1.62 trillion taken by global financial- services firms in the period, according to data compiled by Bloomberg. The World Economic Forum last month named Canada as home to the world’s soundest banks for the second straight year.  The resilience allowed the Canadian lenders to climb the ranks of global firms. Three Canadian banks now rank in the top 10 among North American lenders by market value.

Canadian banks are taking on experienced bankers as larger firms trim ranks. North American banks and brokerages cut 9.9 percent of their workforce in the past two years, according to Bloomberg data. Bank of America Corp. eliminated 46,150 jobs, while Citigroup cut 38,900 positions and Lehman fired 13,390 employees.  By comparison, Canada’s five biggest banks pared 3,135 jobs, or about 1.1 percent of their staff, in areas such as consumer banking, according to company filings.

With its housing market on the mend and its ability to attract global talent growing, Toronto seems poised to come out of the Great Reset in much better shape than anyone could have expected.

Class is a word that elicits strong, and sometimes strange, reactions from many Americans. Once a powerful construct understanding economies and societies, class has been all but banished from the lexicon of social scientists and from the public conversation.

It’s time we put class back in the center of our vocabulary, especially so during this ongoing economic crisis and reset. The impacts of the crisis have been extremely uneven by class – hitting hardest at the industrial working class and their communities.

Over the coming week, I’ll be posting on that, and also on the powerful effects of class on the wealth, innovativeness, and happiness of nations, drawing on a variety of statistical analyses conducted with Charlotta Mellander and my Martin Prosperity Institute colleagues.

We define class simply by peoples’ position in the economy - not by perceived status, level of income, or what we consume, but by the kind of work we do. Conveniently, the U.S. Bureau of Labor Statistics keeps detailed statistics on the myriad occupations that make up the U.S. economy.

We identify three core classes:

The working class who work in production, transportation, construction, and related jobs.

The service class who work in jobs like food prep, grounds cleaning, building maintenance, personal care, administrative offices, and community, social, and protective services.

The creative class of scientists, engineers, and entrepreneurs; artists, designers, media types, and entertainers; and knowledge-based professionals in management, health care, education, and related fields.

I’ll report on the relationship between class and various social and economic outcomes over the next several days, starting with the relationship between class and economic output tomorrow. On Wednesday we turn to class and technological innovation; class and entrepreneurship on Thursday; and class and the happiness of various nations on Friday. Along the way, I’ll also post on the uneven ways that recessions impact different classes, and relationship between class and unemployment, among other things.

Stay tuned.

David Leonhardt interviews President Barack Obama for the New York Times Sunday Magazine on the crisis and what the the financial system, economy, society, and life might look like on the other side.

I actually think that there was always an unsustainable feel about what had happened on Wall Street over the last 10, 15 years, and it’s not that different from the unsustainable nature of what was happening during the dot-com boom, where people in Silicon Valley could make enormous sums of money, even though what they were peddling never really had any signs it would ever make a profit.

That doesn’t mean, though, that Silicon Valley is still not a huge, critical, important part of our economy, and Wall Street will remain a big, important part of our economy, just as it was in the ’70s and the ’80s. It just won’t be half of our economy. And that means that more talent, more resources will be going to other sectors of the economy. And I actually think that’s healthy. We don’t want every single college grad with mathematical aptitude to become a derivatives trader. We want some of them to go into engineering, and we want some of them to be going into computer design.

And so I think what you’ll see is some shift, but I don’t think that we will lose the enormous advantages that come from transparency, openness, the reliability of our markets. If anything, a more vigorous regulatory regime, I think, will help restore confidence, and you’re still going to see a lot of global capital wanting to park itself in the United States.

The whole thing is here. The interview shows how focused Obama is on the economy and his grasp of core economic issues. But it’s a little heavy on the current moment and on immediate tactics. I wish – I really wish – Leonhardt would have pushed harder on the issue of broad economic transformation – and that we’d have gotten to hear more of what the President thinks the economy and society will look like after the Great Reset.

Tune in to Richard Florida’s interview with Robert Siegel which will air on NPR’s All Things Considered this afternoon, April 7.

Up for discussion? The great reset – which Richard discussed in his The Atlantic piece, “How the Crash Will Reshape America” – and how the country’s efforts to rebound from the current economic situation is changing what will be considered “normal.” Specifically, Richard will talk about the cities vs. the suburbs, renting vs. owning, and so on.

Have you defined a “new normal” for yourself and your lifestyle in light of the current economic situation?

The New York Times notes that the crisis is turning design from decoration and frivolity to function.

The pain of layoffs notwithstanding, the design world could stand to come down a notch or two — and might actually find a new sense of relevance in the process. That was the case during the Great Depression, when an early wave of modernism flourished in the United States, partly because it efficiently addressed the middle-class need for a pared-down life without servants and other Victorian trappings.

Patrik Jonsson in The Christian Science Monitor notes that the crisis may be ending the McMansionization of the suburbs and some cities (via Planetizen).

With housing prices off by 18 percent in 20 US cities in the last year and new home starts at a 26-year low, bulldozers have slowed their march across American cities and towns. In Westport, Conn., teardown permits are down in the last year by 33 percent – a figure that experts say can be extrapolated nationwide, though teardown trends do have significant regional variations. Analysts expect the lull to last at least five years, perhaps 10.

My own hunch is that we are witnessing a sharp turn toward quality and functionality. The Great Reset will mean smaller, better, more efficient spaces, and an emphasis on higher quality design from the artifact to the city and regional scales. Call it wishful thinking, but the logic of the economy is at least pushing in the right direction.

Young Japanese men and women are ditching the car as a status symbol, sparking concern for car companies.

That from this story in the Oregonian (via Planetizen). The same can be said of many young Torontonians. I see it in my own life. I am a child of the car culture. Growing up in New Jersey, older kids used to rebuild their GTOs and Barracudas on our street. But now the car I like the most is the one vintage car I own. A couple of years ago, I traded a 10-year-old car for a newer model. Every day now I wish I had the old one back. People will still buy cars, but vintage and used will be back, and more sumptuous Minis, Prius, and their like will supplant today’s luxury cars and SUVs as the aesthetic as well as the economical choice.

Much the same is true of the rise of more compact, energy-efficient (and in some cases modern design) houses or apartments over mega-square-foot McMansions. John Seabrook wrote a fascinating book on consumption trends some years back called Nobrow, where he argued that the old notion of conspicuous consumption as status differentiator is giving way to new, more subtle forms of status differentiation. I have little doubt that the Great Reset will reshape consumption and design more and more along these lines.