you should think of the economy as being in a state of constant churn. The economist Joseph Schumpeter used the now-famous phrase “creative destruction” to describe this process by which new firms push out the old. The result can be cruel, but an extraordinarily fluid labor market, many economists argue, is the secret of American dynamism.
Wolfers tells a PSST story using a metaphor of a parking garage. The metaphor works a bit awkwardly in my view, but it will suffice.
Mr. Trump is focusing his resources on existing firms — the cars already parked there — rather than on the millions of potential entrepreneurs who might open the next generation of businesses.
Pointer from Mark Thoma.
If Mr. Trump can get more center-left economists talking about the seen and the unseen and describing the economy in the way that I do in Specialization and Trade, then he will have done a great service to the profession.
Oh, come on, Arnold. You’re not taking their opportunistic attacks on Trump seriously, are you?
Anyway, aren’t the attacks on the Carrier deal as an instance of the government “picking winners” misplaced? Carrier is already a winner – there’s a market for its product not created by the government – and Trump just persuaded them to keep certain operations in the US that otherwise would have gone elsewhere. What Trump is doing is “keeping a winner,” not picking one. It would be preferable to do this through maintaining a favorable tax and regulatory environment, but that ship sailed long ago.
Sorry, Arnold, but Trump’s job is not to serve a profession, in particular one that cannot serve itself because so many professionals are grotesque partisans of political factions. Just look how many economists have looked at the Dakota Pipeline “Scandal” and how many at the Carrier “Scandal”. That Justin Wolfers now claims how important new firms are for the future of humanity is a joke because he has been supporting many regulations and policies that prevent their creation and expansion. Yes, you can be happy that finally he claims to have seen the light, but do you trust him? how long do you think he will argue for facilitating new firms?
By itself the Carrier deal is too small to make an significant change, but the Rust Belt WWC are the voters that put Trump in the White House and the media spent all of 2016 writing stories of the plight of the WWC. (In reality HRC and Trump will very even across almost all income levels if you include minority votes which is very different than past elections.)
1) Given that the minority workers have received overwhelmingly the wage increases since 2012 (because of urban revivals), I think their is a strong identity politics going on here and that is why Trump focused on the Wall and illegal immigrants.
2) Additionally, I believe the WWC children in WV have less economic opportunity than minority kids in Compton. This reality is first in our history where minorities don’t have the least economic opportunity. Also explains why the heroin epidemic is hitting the WWC communities not the urban neighborhoods.
3) As libertarian economist, what do you recommend for WWC in the Rust Belt. Paul Krugman is right the jobs in these areas aren’t coming back no matter what happens to China. And it is really hard to solidify a culture without private investment. (And no David Brooks Sullivan Travels nonsense is not the answer.) Do we teach these kids to work hard to basically get the hell out like the urban inner cities of the 1980s?
4) The reason why economic creative destruction is so painful is that it creates political/social creative destruction as well. I think that explains 1970s a lot.
5) The strangest part of the 2016 economy is we are at 4.6% and increasingly having shortages in skilled labor. I think ConorSen is correct that the main source of this is the fertility rates long term were lowered in 1970s and 1990s that today have less growth in labor supply. If you don’t believe me go look at the Japanese, Greece, Germany or Italian labor markets. Decreasing family size is going to have an impact and accelerating the aging population.
“If Mr. Trump can get more center-left economists talking about the seen and the unseen and describing the economy in the way that I do in Specialization and Trade, then he will have done a great service to the profession.”
Yep. Could Trump possibly even bring the 1990s Paul Krugman out of deep hibernation?
An equally interesting question is whether Trump will inspire any Libertarians to bend with regard to free trade globalism with what is now a very typical ‘let them eat creative destruction’ view, and compare to the progressives’ ‘let them eat welfare’ stance.
Maybe they could develop a good theory of the second best. If there are going to be interventions, subsidies, and distortions in favor of politically salient domestic employment, which is the least worst form of that policy? What’s the most honorable and plausibly deniable form of this particular political payoff?
I like Schumpeter, but always had a problem with his view on creative destruction because he thought creativity was a process you could dictate by throwing a bunch of smart people in a room (it is not). This way of thinking about the world is still damaging to “emergent order” ideas of liberalism. He writes:
“… innovation itself is being reduced to a routine. Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways. The romance of earlier commercial adventure is rapidly wearing away, because so many more things can be strictly calculated that had of old to be visualized in a flash of genius.” (pg. 132, Capitalism, Socialism, and Democracy)