Richard Florida wrote a new column yesterday stressing the need for using the Stimulus money to build a new economy and instead of pouring money into the economy of the past.
However, the facts are that the locus of economic growth has shifted dramatically and a stimulus that focuses on traditional infrastructure cannot succeed. What drives the economy today is not the old mix of highways and single-family homes but new, idea-driven industries. They range from software, communication devices and biotechnologies to culture and entertainment - and importantly the convergence of the two.
The familiar kind of stimulus - the “shovel-ready” kind that built highways and roads, and worked so well during the Great Depression and its aftermath - worked precisely because it didn’t stimulate that period’s aging agriculture economy. Instead, it accelerated the transition to a new economy based on housing, autos and all the products of the industrial assembly line, from refrigerators and washing machines to air conditioners and television sets.
The Keynes-derived notion of pouring money into public works built the roads and infrastructure that spurred postwar demand and primed North America for postwar global economic dominance, because the consumption embedded in our suburban way of life stimulated just the right kind of industrial production.
But eventually the system got out of whack. The housing and credit bubbles of the past decade ultimately biased and distorted our economy, channelling money and investment toward older industries, real estate and construction and away from more productive, innovative and creative ones.
For a stimulus to work today it has to stimulate the emerging creative economy, the engines of regional economic growth and higher incomes across Canada and the U.S.