Chapter One
The Great Reset

I can’t help wondering what my parents would be thinking right now. Born in the 1920s, my mother and father lived through many of the greatest upheavals of the twentieth century, from the Great Depression of the 1930s to the roaring recovery of the decades that followed the Second World War. Both grew up in Newark, New Jersey’s Italian district, my father’s home absent a refrigerator or indoor plumbing. They recounted stories of the bread lines and tent cities and government-issued clothing that marked the urban misery of the Depression years. My dad left school at age thirteen and took up work in an eyeglasses factory, combining his wages with those of his father, mother, and six siblings to make a family wage. At Christmas, his parents, unable to afford new toys, wrapped the same toy steam shovel, year after year, and placed it for him under the tree. But thirty years later, they were able to follow countless contemporaries to the greener pastures of the suburbs, buying first a house all their own, then a shiny new Chevy Impala, a washing machine, and a television, and raising their children in relative security. My father saw his low-wage job—in the very same factory—turn into good, high-paying work that could support our entire family.

The economic peaks and valleys that my parents experienced are part of the life cycle of any society. They can be difficult, sometimes horribly painful, but just as trees shed their leaves in the fall to make room for the new growth of spring, economies reset themselves. Times of crisis reveal what is and isn’t working. These are the times when obsolete and dysfunctional systems and practices collapse or fall by the wayside. They are the times when the seeds of innovation and invention, of creativity and entrepreneurship, burst into full flower, enabling recovery by remaking both the economy and society. Major periods of economic transformation, such as the Great Depression or the Long Depression of the 1870s before it, unfold over long stretches of time, like motion pictures rather than snapshots. Likewise, the path to recovery can be long and twisted—the better part of three decades in the case of those two previous crises. Seen in the greater context of history, economic crises inevitably give rise to critical periods in which an economy is remade in ways that allow it to recover and begin growing again. These are periods I call Great Resets.

Sitting at his perch in the British Museum, Karl Marx wrote trenchantly about the violent shift from an older agricultural economy to a modern capitalist one. Capitalism, the most innovative, revolutionary economic system of all time, was also prone to financial panics and economic crises. Despite the massive deprivation and human suffering they caused, these crises played a fundamental role in propelling the economy forward. They were critical moments when existing economic and social arrangements were remade, enabling new periods of economic growth. Born in the same year that Marx died, the great theorist of innovation and entrepreneurship, Joseph Schumpeter, used the phrase “creative destruction” to describe how economic crises sweep away old firms and outmoded economic systems and practices, clearing the way for entrepreneurs to introduce new technologies and even entirely new industries and setting into motion a new era of growth. John Maynard Keynes saw in these crises the need for government spending to essentially protect capitalism from itself. With the private sector flat on its back, government spending was the only way to keep capitalism going and get the economy back on its feet. Each of these important thinkers described the part of the process by which busts slowly turn around and lead to booms, but real, lasting recovery requires more than bursts of technological innovation and new roles for government.

President Barack Obama’s chief of staff, Rahm Emanuel, likes to quote Paul Romer’s now-famous maxim about “a crisis being a terrible thing to waste.” The fact of the matter is that we’re wasting it, big time. The whole approach of throwing trillions of public dollars at the old economy is shortsighted, aimed at restoring our collective comfort level. Meaningful recovery will require a lot more than government bailouts, stimuli, and other patchwork measures designed to resuscitate the old system or to create illusory, short-term upticks in the stock market, housing market, or car sales. Government spending can’t be the solution in the long run. Though government can fill in gaps for a while, it simply lacks the resources to generate the enormous level of demand needed to power sustained growth.

“This economic crisis doesn’t represent a cycle. It represents a reset. It’s an emotional, raw social, economic reset,” said General Electric CEO Jeffrey Immelt. “People who understand that will prosper. Those who don’t will be left behind.” Webster’s New Collegiate Dictionary defines “reset” as “to set again or anew.” The Oxford English Dictionary defines it as “to set again or differently.”

Great Resets are broad and fundamental transformations of the economic and social order and involve much more than strictly economic or financial events. A true Reset transforms not simply the way we innovate and produce but also ushers in a whole new economic landscape. As it takes shape around new infrastructure and systems of transportation, it gives rise to new housing patterns, realigning where and how we live and work. Eventually, it ushers in a whole new way of life—defined by new wants and needs and new models of consumption that spur the economy, enabling industry to expand and productivity to improve, while creating new and better jobs for workers.

Economic systems do not exist in the abstract; they are embedded within the geographic fabric of the society—the way land is used, the locations of homes and businesses, the infrastructure that ties people, places, and commerce together. These factors combine to shape production, consumption, and innovation, and as they change, so do the basic engines of the economy. A reconfiguration of this economic landscape is the real distinguishing characteristic of a Great Reset. After the Great Depression, suburbs expanded, creating new demand for automobiles, appliances, televisions, and other goods, allowing the golden age of mass production to come into full flower. The resolution to the economic crisis of the late nineteenth century involved the rise not only of new industries and technologies but of massive industrial cities.

Geographers call it the spatial fix of a problem. By what they destroy and what they leave standing, by the responses or new activity they catalyze, and by the space they clear for new growth, such big economic shocks ultimately leave the landscape transformed. Technological innovation leads to new forms of infrastructure, which lead to revolutions in where and how we live and work. Whether it’s pipes and cables or trains and bridges, the new systems expand the reach of energy and the efficiency of communication and transportation, accelerating the flow of goods, people, and ideas. A powerful movement of people ensues as cities, as well as nations, rise and decline, as major population centers massively expand, and as the economic landscape is developed ever more intensively. Every major economic era gives rise to a new, distinctive geography of its own. This Great Reset will likewise take shape around a new economic landscape and a whole new way of life that is in line with the emerging economic and social realities of our time.

We’re still very early on in the current economic Reset, so it’s difficult to fully grasp how it will ultimately play out. But we can all sense that our way of life is changing and our economic landscape is too. These changes are emerging—and have been emerging—organically, in fits and starts, for some time now. They don’t result from top-down policy or programs, though government can encourage or discourage them by what it does or does not do. One thing is certain: this emerging new way of life, which some already refer to as an impending “new normal,” will be less oriented around cars, houses, and suburbs. We’ll be spending relatively less on the things that defined the old way of life. We’ll have to, if we expect to have money left over to sustain the new industries that will emerge in the Great Reset and usher in an age of renewed prosperity. During the Great Depression of the 1930s, as we will see, the amount of money families spent on food fell dramatically, as did the percentage of Americans working in agriculture to directly produce that food. The same kind of transformation has to happen today. Before we can nurture the new industries of the future, develop new forms of health care and biotechnologies, or even explore new forms of education or more experiential forms of entertainment and recreation, we first have to free up capital by producing the goods of the old industrial order more cheaply and efficiently.

We’ve reached the limits of what George W. Bush used to call the “ownership society.” Owning your own home made sense when people could hope to hold a job for most or all of their lives. But in an economy that revolves around mobility and flexibility, a house that can’t be sold becomes an economic trap, preventing people from moving freely to economic opportunity. Not only has that piece of the American Dream grown dark, but it’s also clear that financial excess in the housing sector was one of the central causes of the economic crisis. Housing sucked up far too much of the nation’s and the world’s capital, and too many people—already overextended by the purchase of outsized houses—used those homes like virtual ATMs to finance carefree consumption. Every Great Reset has seen our system of housing change, and this one is no different. The rate of home ownership has been on the decline for some time now. Many of those who still choose to buy homes will choose smaller ones, while many more will opt for rental housing.

Our new way of life is likely to depend a whole lot less on the car. In October 2009, the New York Times reported, “The recession and a growing awareness of the environment are causing many people to reassess their automobile ownership. After more than a century in which an automobile represented the American dream, car enthusiasm may no longer be a part of Americans’ DNA.” Car culture no longer exerts the powerful pull it once did. More and more families are deciding to share cars, and young people are putting off buying them and using public transit, bikes, their feet, or Zipcars or other auto-share services instead. It’s not just that oil and gas have become expensive, it’s that traffic and gridlock have become a deadweight time cost on us and our economy.

One constant in the history of capitalism is the ever-more-intensive use of land, as mercantile towns replaced agricultural villages, major industrial cities replaced those towns, and massive complexes of suburbs, exurbs, and edge cites expanded the boundaries of those cities. The change we are living through is much more than a movement from suburbs to denser urban communities. What we are seeing is the rise of a new, bigger, and denser economic landscape than ever before—the rise of vast megaregions such as the corridors stretching from Boston to New York and Washington, D.C., around greater London, and from Shanghai to Beijing.

These trends are in their infancy but will imprint themselves ever more forcibly on future generations. We need to understand them so that we can best adjust to them in ways that nurture broadly shared prosperity. My goal in this book is to provide a deeper understanding of the forces that are reshaping our economy and society and to provide a framework that can better direct our effort to guide or accelerate them, while ameliorating their most onerous dislocations and human costs. Resets are complex, organic processes—progress in one area of life triggers changes in another and so on down the line. Looking backward, I aim to unpack and distill the main factors and forces that have emerged during past crises and have shaped previous Resets, ultimately driving whole new eras of growth and prosperity. Looking ahead, I seek to identify the already emerging tendencies in our economy and society that can come together as core elements of yet another Great Reset—new consumption patterns that are less centered around houses and cars, new forms of infrastructure that once again speed the movement of people, goods, and ideas, and a radically altered and much denser economic landscape that will provide the springboard for a whole new way of life and drive the development of new industries and jobs. We need to anticipate and understand the trends that are already under way so that we can develop strategies that will speed their onset, shrink the time it takes to move from crisis to enduring recovery, deal most effectively with the dislocation and pain they bring about, and ultimately create a broad new era of prosperity.