The new American Dream: the economy will prosper again when more Americans can do the work they love. The party that realizes this first wins.

• Author: Florida, Richard

THE DEBATE OVER THE NATION'S economic policies has become so vacuous and out of touch that it's alarming. The Republicans look eerily like the party of Calvin Coolidge, with a tax cut on corporate dividends masquerading as their catch-all solution to a stalled economy. The Democrats have at least tried to help, with tax cuts for lower-income people, assistance for state and local governments, and extended unemployment benefits. But such fixes are merely palliatives.

It is time for a change. The market crash, the ensuing recession, the worsening societal inequality--these are not normal cyclical downturns or growing pains. We are in a crucial transitional stage. The nature of our economy is changing; the nature of what people want from our economy is changing. A whole new system for creating wealth is taking shape, a new kind of capitalism that is powerful and full of promise, but far from fully formed. Yet neither party is proposing measures that might help it along because neither appears to grasp what's going on.

The key factor going largely unheeded is the rise of creativity as the central force in our economy. Without great waves of new products, technologies and industries, our economy would barely have grown since the dark days of the 1970s and early 1980s. Without constant innovation none of our industries will avoid the grim fate that befell factories and offices across the United States. Innovation doesn't come magically from an invisible hand. It comes from people. Every innovation, be it the Palm Pilot, My. Big Fat Greek Wedding, or the tweaks that make a chemical plant run better, can be traced to human creativity--to people having ideas and finding better ways of doing things.

In recent history, the number of people doing creative work has exploded. Those in creative occupations--from engineers and designers to artists and writers to higher-end planners, analysts, managers, and other "creative professionals"--now comprise more than 30 percent of the workforce, up from about 10 percent in 1900 and only 20 percent as recently as 1980. Creative-sector workers today outnumber blue-collar workers. And the creative sector of the economy accounts for nearly half of all wage and salary income--$1.7 trillion dollars per year. The rise of the creative sector has also changed the way people work, as well as their expectations. The American Dream is no longer just about money. Better pay, a nice house, and a rising standard of living will always be attractive. But my research and others' show another factor emerging: The new American Dream is to maintain a reasonable living standard while doing work that we enjoy doing. In fact, many people are willing to trade income for work they enjoy. I've interviewed countless professionals who left secure jobs for riskier new ventures, often at lower pay, not for a shot at a stock-option bonanza but for a chance to do work that excites them.

I've seen it on the lower rungs of the economic ladder as well. While unions and politicians bemoan the loss of "good" manufacturing jobs, such as machine-tool operator, states like Pennsylvania have actually had a hard time filling those jobs that remain, even as cosmetology schools fill up with working-class kids hoping to be hair stylists. The hair salon typically pays less and offers fewer benefits than the machine shop--but it's seen as more creative and stimulating. The point is not that we should all join startups or become hair stylists. It is simply that what growing numbers of Americans want today is the very same thing needed to strengthen our economy. Not just more financial opportunity, but more creative opportunity.

Yet both parties disregard these dynamics and put forth "old economy" solutions: tax cuts, financial incentives, and fiscal pump-priming, along with financial safety nets, tariffs, and other favors to protect big firms. I've seen similar measures fail in nearly 20 years of research on state and local economic development. Desperate to keep firms and industries, and to lure new ones, many cities and regions bled themselves with tax cuts, building projects, and other costly incentives. To uphold their sinking "major league" status, many squandered scarce public funds on dramatic gestures like new stadiums, which diverted the public's attention but added little or nothing to their region's creative capacity. The result was counterproductive: Existing firms and industries downsized their payrolls anyway, while growth flourished in places like the San Francisco Bay Area and Boston, which actually had higher costs but better creative climates. Today we are reprising this flawed strategy at the national level. The real key to driving the economy forward and "completing" our emergent creative system doesn't lie in financial incentives alone but in summoning innovation--human creativity.

Nor is it always true that the financial carrot will lure the creative rabbit out of the hat. At the system level, the drive for financial gain encourages innovation in many ways; but can also stifle it or waste it--by favoring quick-payback applied R&D over basic research; by diverting lots of creative energy into narrow channels like high-margin luxury goods; by letting investor greed fuel speculative bubbles that burst and spoil the game for everyone. And at the personal level, money is vastly overrated as a motivator of human creativity. There is little evidence that Edison or the Curies toiled at their experiments for the chance to get rich; Edison was sometimes too eager to plow money back into more experiments. What drove the Wright brothers to invent was not financial competition, but creative competition: the race to be first to fly. It's this kind of "competition" that truly motivates most scientists and inventors, and even football coaches, artists, and rappers. To keep our economy vital, the behavior that fundamentally needs to be incentivized and supported is not money-making but creative activity. When more people do the good work they enjoy, wealth will follow--not the other way around. Developing a vision for expanding opportunities for creative work' is the great untapped political opportunity for both parties in the new century.

It is also an economic imperative. Other countries are competing in the creative economy. Ireland is now the world's second-leading exporter of software, while Finland, with Nokia, is a world leader in cell phones. Japanese auto firms were first to put hybrid and fuel-cell cars on the street. India and Indonesia are rising powers in high-tech fields like...