Today, my native country Spain, officially reaches for the first time in its history the 4 Million figure of unemployed.  This is a devastating number of people, no matter if this is just a psychological number or if is correctly measured.

I remember in the early 90’s when it reached the 3 million mark. It was a shock for the nation, it was a pretty scary moment. I was in high-school so it did not affect me directly but I knew that the family business was going through a hard time.

Now we reach 4 million. There has been a lot of immigration increasing the total population, so maybe it’s around the same percentage we had, although it’s hard to measure as methodologies have changed.

Spain until recently has been admired in Europe. It was seen as one of the fastest growing and most dynamic economies. Now it’s becoming the ugly duck of western Europe. For some analysts might even be the canary in the coalmine of deflation (perhaps a little exaggerated article for my taste). Reading the commentaries in the Spanish newspapers, now it’s all critics for the Government, which I positioned in the political right (with a little flavor of the left). Everyone is mad at Zapatero now. Some are saying go left, other go right.

For my part, instead of criticizing I would give to suggest two concrete policy suggestions for Spain. I might be wrong, many times I am, but this is what I feel today:
1. Try to adapt some type of flexicurity model. The concept was originated here in Denmark, and after living here almost 2 years I have been convinced of the wonders of it. Of course you can’t “cut & paste” it, you have to adapt it to the Spanish socioeconomic background, but I think it should be worth to explore the possibility of trying it. In fact I wish some researchers or policy makers could come here to my University where they have the Centre for Labour Market Research at Aalborg University (CARMA). I’m convinced that Spain needs some flexibility for the labour market. As I said, I come from a family who has been involved in the creation of several businesses. I’m not saying we’re the perfect firms, but we have created overtime good services for the people and employment. We have also suffered tremendously when the businesses were not doing good. Some times it came for the difficult to hire someone or fire someone. In Spain, compared to other countries it’s quite hard to layout someone, even with more than accepted reasons in other countries. Another leg of the flexicurity tripod, it’s the embarrassing the Spanish official “Oficina de Empleo”, which it’s just a bureaucrat machine, that in many cases has very nice civil servants, but it provides the worst service for everyone. They should be able to find employment in an effective way. I wonder what kind of incentives should be given to the ones running the show. Also it’s important that the unemployed (especially the recently) received economic support until they find another job. I also find useful that the employed buy some type of subsidised insurance in case they loose their job (in Denmark this was used to do through the unions).

2. Incentive the renting in the housing market. In Spain we have the highest rate of home owners in the world. In order to do it, for some this could be very unpopular measures such as taxing empty housing in bigger cities (specially among banks, ha!), besides other measures. The other possibility of course (very reasonable too) it’s to let the banks and housing developers to bankrupt so the market stabilizes. That means not a single cent for any type of corporate bailouts. Anyways, helping to boost the housing market with rent could cover several possibilities: a) People would be more flexible to move to find a job, b) Speculation would decrease which highly has affected the economy-employment c) many people could save their homes upon renting a place they can’t afford (for that it would be more than helpful to have some agreements with the bank (giving the mortgage) and government as some type of collateral), d) many young people could start their own families and this would revert in the economy. I talked a little bit more about this in a past post also talking about housing in Spain and America.

It’s always nice to stop by Creative Class by the Richard Florida squad. Following links I hit the “How the Crash Will Reshape America” published in the Atlantic in the March 2009 issue.

As I have said sometimes, I like Florida. It seems to be kind of funny that all academics related to the discipline of economic geography say “Florida’s ideas are good, BUT…” It seems that they have to say that in order to show their academic credentials.
So, I of course have to say the same. However, for this last document I admit I have very little objection or none.
He clearly explains the change of economic paradigms and how the American cities have to evolve. He quotes Schumpeter, Jacobs, Romer, Glaeser, Lucas, Krugman among some of the key fellows. His final proposals to change the housing market towards a more renting instead of owning are bold. Which is exactly what the U.S., and great part of the world needs now. Not so much Denmark, but this will be especially fit for my home country Spain.

The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy—the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.

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.

Once again I have to say, thank you Richard!

This week I went to the library of the Danish language center. I went to return some books (for learners) and had a little conversation with the librarian in Danish. Then we switched to English, as many Danes do when they see you’re struggling. Then he asked me: “So, you study economy, when do you think the crisis is going to finish?” I thought a second and said: “5 years to really recover”. He replied back: “5 years!, that’s long time, uh?!. Is that what you really think?”. I said something like. “Some say now is the lowest point of the economy. Others say in three months things will start recovering. Other 2 years and others… more. So let’s say 2014 to really see the improvement.

While I was saying it that a mix of articles at nyt, financialtimes, intereconomia, the coming of Obama, commercials or American realtors, the economic crisis/consumer confidence graph, and few other things, quickly run over my head.

I followed, “You know, the economy comes in cycles, so things will improve. When? Nobody knows. But perhaps we will not see in a very long time the kind of live many people had before”. Then I remembered the Cities of Jane Jacobs, and her worst economic dream: “Having all the main cities stagnate at the same time, and little by little all loosing their skills”.

A few months ago in the birthday party of Bram, many recent graduates (economists, mastered in businesses, etc.) and young academics were talking about the upcoming of the financial crisis, and how the cousins from Iceland just got quite screwed. Some pointed out the housing market, but I showed my skepticism towards the importance of the housing, after all if you add the price of all foreclosure and related in the US, that was only around 200 billion. Which is peanuts compared with the amounts of trillions that were being lost.

I have always been more inclined to suspect about the artificial low interest rate in the U.S., the debt, the high military expenses (the 3 are strongly connected). In the party, I even said that this could be the death of the theories of the National Innovation System, something that made all the IKE guys around quite shocked. Not that I don’t love those theories, but I doubted of the extreme relevance of the “National System” term, when the Global seemed to be the dominant. To ease the feelings and the high probabilities for me to be wrong, I said I was exaggerating.

But going back where I wanted to go, now I think that I underestimated the role of the housing. Of course this is connected with the ability of money by the artificial low interest rate. But here it came my moment of light.

I was talking with my wise grandma in Christmas. She’s 75 and she’s very intelligent, however because of the poor situation in Spain when she grew up, she did not even finish primary education. I asked her: Why do we have this crisis?. She replied without any doubt: “Because everyone wanted to get a bigger house, or a second or a third one. Have you seen how many houses they have built? And the prices kept increasing to a ridiculous level! If people would have stayed where they lived, the economy would have been ok. Look at your cousin*, she sold her old apartment, for 30 million (of pesetas) when she bought it for 12. She bought her new house for 40 and wanted to sell it for 75. Cash the money and get another house for 50. Her neighbor was lucky and sold a similar house for 75, but that was just crazy! But in the first place, why did she need a bigger house? You sleep in one room, you cook in another, you don’t need anything else! She should have stated in the first apartment and everything would have been just fine. Because they already have good salaries, and they would have been happy, now they are just worried. This is her case, because I know it, but thousands are like that.”

I replied. “Grandma, I have been thinking about it a lot, and I think you are right”.

Then I saw it was confirmed the death of the experience economy. Ok, I’m exaggerating.

* the identity of my family member has been changed.