Creative Destruction

NY Times, November 14, 2008
Op-Ed Columnist
Bailout to Nowhere
By DAVID BROOKS

Not so long ago, corporate giants with names like PanAm, ITT and  Montgomery Ward roamed the earth. They faded and were replaced by new  companies with names like Microsoft, Southwest Airlines and Target. The  U.S. became famous for this pattern of decay and new growth. Over time,  American government built a bigger safety net so workers could survive  the vicissitudes of this creative destruction – with unemployment  insurance and soon, one hopes, health care security. But the government  has generally not interfered in the dynamic process itself, which is the  source of the country’s prosperity.

full: http://www.nytimes.com/2008/11/14/opinion/14brooks.html

Brooks is a long-time conservative ideologue who like William F.  Buckley’s son Christopher was very critical of the McCain campaign but  did not go all the way and vote for Obama.

“Creative destruction” refers to economist Joseph Schumpeter’s belief:

“The opening up of new markets, foreign or domestic, and the  organizational development from the craft shop and factory to such  concerns as U.S. Steel illustrate the same process of industrial  mutation-if I may use that biological term-that incessantly  revolutionizes the economic structure from within, incessantly  destroying the old one, incessantly creating a new one. This process of  Creative Destruction is the essential fact about capitalism. It is what  capitalism consists in and what every capitalist concern has got to live  in. . .”

full: http://transcriptions.english.ucsb.edu/archive/courses/liu/english25/materials/schumpeter.html

This appears to jibe with the attitude of Republican legislators’ toward  an automaker bailout:

NY Times, November 14, 2008
Chances Dwindle on Bailout Plan for Automakers
By DAVID M. HERSZENHORN

WASHINGTON – The prospects of a government rescue for the foundering  American automakers dwindled Thursday as Democratic Congressional  leaders conceded that they would face potentially insurmountable  Republican opposition during a lame-duck session next week.

At the same time, hope among many Democrats on Capitol Hill for an  aggressive economic stimulus measure all but evaporated. Democratic  leaders have been calling for a package that would include help for the  auto companies as well as new spending on public works projects, an  extension of jobless benefits, increased food stamps and aid to states  for rising Medicaid expenses.

But while Democrats said the stimulus measure would wait until  President-elect Barack Obama takes office in January, some industry  experts fear that one of the Big Three automakers will collapse before  then, with potentially devastating consequences.

Despite hardening opposition at the White House and among Republicans on  Capitol Hill, the Democrats said they would press ahead with efforts to  provide $25 billion in emergency aid for the automakers. But they said  the bill would need to be approved first in the Senate, which some  Democrats said was highly unlikely.

full: http://www.nytimes.com/2008/11/14/business/14auto.html

Hmmm. During the 1930s, there wasn’t much chance that Ford, GM and  Chrysler would go out of business, right? The pain was much greater in  the 1930s but the potential for an even greater collapse exists today.  Creative destruction rests on the premise that capitalist expansion is a  kind of perpetual motion machine. But what will replace GM if it goes  under? Something tells me that we need to use a different frame of  reference to understand today’s crisis rather than 1929. I am not sure  what it is. Perhaps that is a function of being in uncharted waters.