The Economics of Creative Destruction, Part II

February 26, 2024 by Dan Mitchell @ International Liberty

I’ve referred to “creative destruction” as the “best and worst part of capitalism.”  This short video from the Fraser Institute is a good tutorial on the topic.

The core message is that entrepreneurs improve our lives by coming up with new ideas, new technologies, and new products.

 

That’s the good news.  The bad news is that this process unavoidably can have a very negative effect on sectors of the economy that get displaced. That being said, the bad news for people like blacksmiths and carriage makers hopefully is only temporary since the economy creates other jobs. This is a point I’ve made when looking at global trade, but the lesson would apply even if the United States was the world’s only nation.

For today’s column, I don’t need to provide any additional analysis. Instead, I’m simply going to share four tweets that illustrate the power of creative destruction. First, I’ve explained that big companies can get toppled. This tweet shows have fast it can happen.

Editor's Note:  There are two X (Twitter) frames here I can't duplicate.  Follow the link his original. RK

Sticking with the topic of companies, here’s a remarkable tweet capturing the dynamism of the American economy. Next, you don’t need to be my age to remember ubiquitous Blockbuster stores. At one point, there were nearly 6,000 in the country. But look what happened as new technologies gave consumers better options.

Now let’s travel back in time. Here’s a job that disappeared because of technological improvements. The moral of the story is that the rise and fall of different industries, different companies, and different professions can be messy. 

But the long-run result is much higher living standards for families. As I explained in this video, even the children and grandchildren of people who lost their jobs because of creative destruction are much better off.

P.S. Understanding creative destruction also helps to explain why industrial policy is so misguided, along with protectionism. Politicians and special interests are motivated by a desire to save jobs in declining sectors. Instead, they should adopt policies that lower barriers to investment and entrepreneurship. That’s the recipe to hasten the creation of new jobs.