Can this economic destruction be creative?

In a different key, Richard Florida's magisterial blueprint for new patterns of sustainable development, How the Crash will Reshape America, chimes with Obama's brand of American optimism, his endlessly reasserted faith that American have always and will once again convert crisis into opportunity. Florida anticipates a kind of creative destruction in the wake of the housing bubble, a chance to remake the landscape, the economy and the community:

The Stanford economist Paul Romer famously said, “A crisis is a terrible thing to waste.” The United States, whatever its flaws, has seldom wasted its crises in the past. On the contrary, it has used them, time and again, to reinvent itself, clearing away the old and making way for the new. Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century’s Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience. Can we do it again?

Obama's yes we can, like Florida's implied affirmative, is grounded in faith in democracy. Democracies are not immune from horrendous mistakes and periods of dysfunction. But their saving grace is self-correction. In Obama's terms, "When the American people are determined that something is going to happen, then it happens." As long as the capacity for self-correction -- that is, for real electoral choice -- is not itself destroyed outright or undermined, the ship of state will right itself.

The reformed demographic grid that Florida envisions entails a concentration of people in mega-metropolitan areas with a critical mass of diverse human talent; a reversal of suburban sprawl that will not only be ecologically more sustainable, but raise the "metabolism" -- that is, the creative interaction of people living in close proximity -- of these urban centers; a reduction in homeownership that will foster a more mobile workforce; and shrinking of urban areas that fail to achieve a critical mass of creativity.

One of Florida's more startling claims is that over-promotion of homeownership has contributed to economic sclerosis and needs to be rolled back:

If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

And while homeownership has some social benefits—a higher level of civic engagement is one—it is costly to the economy. The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities.

As homeownership rates have risen, our society has become less nimble: in the 1950s and 1960s, Americans were nearly twice as likely to move in a given year as they are today. Last year fewer Americans moved, as a percentage of the population, than in any year since the Census Bureau started tracking address changes, in the late 1940s. This sort of creeping rigidity in the labor market is a bad sign for the economy, particularly in a time when businesses, industries, and regions are rising and falling quickly.

The foreclosure crisis creates a real opportunity here. Instead of resisting foreclosures, the government should seek to facilitate them in ways that can minimize pain and disruption. Banks that take back homes, for instance, could be required to offer to rent each home to the previous homeowner, at market rates—which are typically lower than mortgage payments—for some number of years. (At the end of that period, the former homeowner could be given the option to repurchase the home at the prevailing market price.) A bigger, healthier rental market, with more choices, would make renting a more attractive option for many people; it would also make the economy as a whole more flexible and responsive.

A core rationale for homeownership is that the home is keystone for accruing a measure of wealth. That's always been questionable, at best a partial truth that's based on large part on the mortgage deduction. Absent insane housing bubbles, a home is at best a forced savings program with a modest rate of return -- one that would be outpaced, in many regions, by investing a percentage of income equal to the paydown of principal in the stock or bond markets or even in a savings account. And now we all know that at certain times and places, homeownership can destroy wealth as surely as the stock market can.

Of course, homes are also means of self-expression and of social investment in a community. Ownership also builds competence and responsibility--having grown up in New York City in the pre-co-op era, I can attest that renting can foster a kind of passivity and naivete about the way things work. On balance, owning a home is a good thing. But like marriage or raising children, it's not an unmixed blessing, and it's not for everyone. In many cases it's a fetter, tying people to deteriorating environments, opportunity-free regions, or simply a living space that no longer suits their needs.

As the Obama Administration and Congress prepare anti-foreclosure initiatives, realism and flexibility are essential. Some people - those who can pay a reasonable fixed rate on a principal that reflects the current value of their homes - should be helped to maintain their hold. Others, as Florida suggest, might be helped to rent the homes they used to own, in some cases with a path to repurchase when the economy and their fortunes recover. Others should be helped to walk away, and perhaps to relocate after retraining.