I have a four-part video series on trade-related topics.
- Part I focused on the irrelevance of trade balances.
- Part II looked at specialization and comparative advantage.
Here’s Part III, which explains how trade (whether domestic or international) leads to creative destruction, which results in some painful short-run costs but also yields immense long-run benefits.
I recently argued that creative destruction is the best part and worst part of capitalism.
It’s bad if you’re a worker in a company that loses out (or if you’re an investor in that company). but it’s also what enables us to become more prosperous over time.
I’m not alone. Writing for CapX, Oliver Wiseman reviewed Capitalism in America, a new book by Alan Greenspan and Adrian Wooldridge. Here are some key observations.
…there was nothing predictable about America’s rise from colonial backwater to world-beating economy. …The fight for independence began a year before the publication of Adam Smith’s The Wealth of Nations; “the new country was conceived in a revolt against a mercantilist regime
that believes a nation’s economic success was measured by the size of its stock of gold.” …The Constitution’s limits on the power of the majority set America apart from the rest of the world and “did far more than anything else to guarantee America’s future prosperity…” On top of this fortuitous start is the country’s “greatest comparative advantage”: its “talent for creative destruction”, the driving force of innovation, growth and prosperity that “disequilibriates every equilibrium and discombobulates every combobulation”. Americans realised that “destruction is more than an unfortunate side effect of creation. It is part and parcel of the same thing”. …The result is a system that has squeezed more productive energy out of its human capital than other countries, and generated unparalleled prosperity.
For those interested in economic history, Joseph Schumpeter gets most of the credit for developing the concept of creative destruction.
This Powerpoint slide is a nice summary of Schumpeter’s contribution (notwithstanding the fact that the person misspelled his name).
And here’s a Tweet showing that Schumpeter was under no illusions about the folly of socialism.
Turns out, Schumpeter was a troll. pic.twitter.com/7ApBK5UYSy
— Damir Marusic (@dmarusic) December 12, 2018
The bottom line is that creative destruction is what gives us churning, and churning is what dethrones rich and powerful incumbents. My friends on the left should be cheering for it.
Instead, they push for regulations and taxes that hinder creative destruction. And that means less long-run prosperity for all of us.
