“Our World Has Been “Schumpetered””

“Schumpeter” is now a verb!

(p. v) In the mid-twentieth century Joseph Schumpeter, the noted Austrian economist, popularized the term “creative destruction” to denote transformation that accompanies radical innovation. In recent years, our world has been “Schumpetered.” By virtue of the intensive infiltration of digital devices into our daily lives, we have radically altered how we communicate with one another and with our entire social network at once. We can rapidly turn to our prosthetic brain, the search engine, at any moment to find information or compensate for a senior moment. Everywhere we go we take pictures and videos with our cell phone, the one precious object that never leaves our side. Can we even remember the old days of getting film developed? No longer is there such a thing as a record album that we buy as a whole–instead we just pick the song or songs we want and download them anytime and anywhere. Forget about going to a video store to rent a movie and finding out it is not in stock. Just download it at home and watch it on television, a computer monitor, a tablet, or even your phone. If we’re not interested in getting a newspaper delivered and accumulating enormous loads of paper to recycle, or having our hands smudged by newsprint, we can simply click to pick the stories that interest us. Even clicking is starting to get old, since we can just tap a tablet or cell phone in virtual silence. The Web lets us sample nearly all books in print without even making a purchase and efficiently download the whole book in a flash. We have both a digital, virtual identity and a real one. This profile just scratches the surface of the way our lives have been radically transformed through digital innovation. Radically transformed. Creatively destroyed.

Source:
Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.

Abigail Fisher “Devastated” by “Holistic Review”

FisherAbigailAffirmativeAction2012-10-12.jpg “Abigail Fisher, 22, at the Supreme Court last month. “I probably would have gotten a better job offer had I gone to U.T.,” Ms. Fisher said.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A1) WASHINGTON — Abigail Fisher is a slight young woman with strawberry blond hair, a smile that needs little prompting, a determined manner and a good academic record. She played soccer in high school, and she is an accomplished cellist.

But the university she had her heart set on, the one her father and sister had attended, rejected her. “I was devastated,” she said, in her first news interview since she was turned down by the University of Texas at Austin four years ago.
Ms. Fisher, 22, who is white and recently graduated from Louisiana State University, says that her race was held against her, and the Supreme Court is to hear her case on Wednesday, bringing new attention to the combustible issue of the constitutionality of racial preferences in admissions decisions by public universities.
“I’m hoping,” she said, “that they’ll completely take race out of the issue in terms of admissions and that everyone will be able to get into any school that they want no matter what race they are but solely based on their merit and if they work hard for it.”
. . .
(p. A17) The majority opinion in the Grutter case, written by Justice Sandra Day O’Connor, rejected the use of racial quotas in admissions decisions but said that race could be used as one factor among many, as part of a “holistic review.” Justice O’Connor retired in 2006, and her replacement by Justice Samuel A. Alito Jr. may open the way for a ruling cutting back on such race-conscious admissions policies, or eliminating them.
. . .
She said she was trying to come to terms with her role in a case that could reshape American higher education. Asked if she found it interesting or exciting or scary, she said, “All of the above.”
But she did not hesitate to say how she would run an admission system. “I don’t think,” she said, “that we even need to have a race box on the application.”

For the full story, see:
ADAM LIPTAK. “Race and College Admissions, Facing a New Test by Justices.” The New York Times (Tues., October 9, 2012): A1 & A17.
(Note: ellipses added.)
(Note: the online version of the review has the date October 8, 2012.)

Paul Samuelson, in 2009 Interview, Says Economists Should Study Economic History

Clarke Conor interviewed Paul Samuelson in the summer of 2009. Since Samuelson died in October 2009, the interview was one of his last.
Samuelson was a student of Joseph Schumpeter at Harvard, and Schumpeter worked to get Samuelson financial support and a job. Near the end of his life, Schumpeter was ridiculed when he warned National Bureau of Economic Research (NBER) economists that they should not neglect economic history.
It took Paul Samuelson a long time to appreciate Schumpeter’s truth.

Very last thing. What would you say to someone starting graduate study in economics? Where do you think the big developments in modern macro are going to be, or in the micro foundations of modern macro? Where does it go from here and how does the current crisis change it?

Well, I’d say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that’s the raw material out of which any of your conjectures or testings will come. And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn’t have been.
But history doesn’t tell its own story. You’ve got to bring to it all the statistical testings that are possible. And we have a lot more information now than we used to.

For the full interview, see:
Clarke, Conor. “An Interview with Paul Samuelson, Part Two.” The Atlantic (2009), http://www.theatlantic.com/politics/archive/2009/06/an-interview-with-paul-samuelson-part-two/19627/.
(Note: bold indicates Conor question, and is bolded in original.)
(Note: the interview was posted on The Atlantic online website, but I do not believe that it ever appeared in the print version of the magazine.)

Chamber Blitz Clip for Tort Reform

BlitzGasolineCans2012-10-11.jpg “Blitz gasoline cans, at Ace Hardware in Miami, Okla., will soon disappear from stores. The company closed because of the costs of lawsuits contending that the cans were unsafe.” Source of caption and photo: online version of the NYT article quoted and cited below.

The “Mr. Flick” quoted below is Rocky Flick, the former CEO of Blitz.

(p. B1) Crusading against what it considers frivolous lawsuits, the United States Chamber of Commerce has had no shortage of cases to highlight, like the man suing a cruise line after burning his feet on a sunny deck or the mother claiming hearing loss from the screaming at a Justin Bieber concert.

Now, the lobbying group’s Institute for Legal Reform is showing a 30-second commercial that uses Blitz USA, a bankrupt Oklahoma gasoline can manufacturer, to illustrate the consequences of abusive lawsuits. The ad shows tearful workers losing their jobs and the lights going out at the 46-year-old company as a result of steep legal costs from lawsuits targeting the red plastic containers, according to the company and the institute.
The closing of the 117-employee operation this summer became a rallying point for proponents of tort reform. . . .
. . .
(p. B2) Blitz executives note that the company, which was the nation’s leading gas can producer, sold more than 14 million cans a year over the last decade, with fewer than two reported incidents per million cans sold. The company said the most serious incidents usually involved obvious misuse of the cans, like pouring gasoline on an open fire.
. . .
A decade ago, Mr. Flick said, the company would face one or two lawsuits a year. The number grew to six or seven a year, and finally to 25 or so last year when Blitz filed for bankruptcy.

For the full story, see:
CLIFFORD KRAUSS. “Two Sides of Product Liability: A Factory’s Closing Focuses Attention on Tort Reform.” The New York Times (Fri., October 4, 2012): B1.
(Note: ellipses added.)
(Note: the online version of the article is dated October 5, 2012 and has the shorter title “A Factory’s Closing Focuses Attention on Tort Reform.”)

View the Chamber video clip on the Blitz example:

FlickRockyFormerBlitzCEO2012-10-11.jpg

“Rocky Flick, Blitz’s former chief executive.” Source of caption and photo: online version of the NYT article quoted and cited above.

Much Innovation Has “Nothing to Do with Science–It’s Just Creative Mankind Chipping Away at Things”

(p. 122) VANE and MULHEARN: The prize rewards specific discoveries, achievements, or breakthroughs in economic science. Your pioneering contributions have opened up a rich seam of research for others to mine. Does academic knowledge largely progress through the lead taken by a small number of creative innovators?
PHELPS: That’s such a good question. It resonates with a subject in the area of innovation theory. The old guys like Arthur Spiethoff thought that progress was due to the great discoveries of the scientists and navigators. Schumpeter (1934) (p. 123) didn’t depart altogether from that, he simply said, well, that’s right but you’ve got to have some entrepreneur to actually implement it. But don’t think there’s much creativity there–everybody knows what’s in the air. And it’s very rare that anything new really gets created in the course of this development work. But now we don’t think about innovation in that way so much. We recognize that once in a while there is a big leap which creates the ground for a surge of innovations to follow. Nowadays we realize that an awful lot of innovation just comes from business people operating at the grass roots having ideas on the basis of what they see around them. Nothing to do with science–it’s just creative mankind chipping away at things. I know that the Sens and the Mundells and the Lucases are towering figures, but they couldn’t have become so if they hadn’t read a lot of papers by, well, pretty average people who are just doing a good job of exploring a question and giving inspiration. I guess the towering figures are people with just a little more drive, a little more imagination, just a little cleverer in putting some things together. In other words, I don’t know the answer to the question [laughter].

For the full interview, from which the above is quoted, see:
Vane, Howard R., and Chris Mulhearn, interviewers. “Interview with Edmund S. Phelps.” Journal of Economic Perspectives 23, no. 3 (Summer 2009): 109-24.

Openness to Creative Destruction Will Speed Health Care Progress

CreativeDestructionOfMedicineBK2012-10-11.jpg

Source of book image: http://si.wsj.net/public/resources/images/OB-RQ412_bkrvme_DV_20120202132402.jpg

Eric Topol has bucked the medical establishment before. In entries on August 20, 2006 and on December 26, 2006 on this blog, he was quoted as arguing that stents were being overused. Now he argues that the medical establishment is slowing progress that could reduce disability and extend life. He advocates the sequencing of each of our genomes and a medical revolution that will fine-tune treatment to our genomic differences.
Many agree with Topol’s view of the future of medicine, but many medical schools are neglecting teaching future doctors about the therapeutic implications of individual genomics.
Topol calls for the creative destruction of medical education and other medical institutions.
The early part of the book is weak because it discusses subjects on which Topol is not an expert—such as the history and applications of information technology. In these sections, he too often tediously explains the obvious and widely known. Sometimes in this section of the book, he is just wrong, as when (p. 14) he claims that Werner Sombart originated “creative destruction.”
After the early chapters the book comes into its own when Topol discusses medical advances and challenges. While his early prose may be aimed too low, his later prose may be aimed too high—but it is better to be talked up to than down to, and the best of the later chapters contain some fascinating descriptions of what is happening on the frontiers of medicine, and what could be happening if we change policies and institutions to make medicine more open to creative destruction.
In the following few weeks, I will be quoting several of the more important or thought-provoking passages.

Book discussed:
Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.

Capitalism Is Justified Because It Is an “Engine for Generating Creative Workplaces”

(p. 121) Phelps: . . . Since 2002, I’ve been trying to develop a new justification for capitalism, at least I think it’s new, in which I say that if we’re going to have any possibility of intellectual development we’re going to have to have jobs offering stimulating and challenging opportunities for problem solving, discovery, exploration, and so on. And capitalism, like it or not, has so far been an extraordinary engine for generating creative workplaces in which that sort of personal growth and personal development is possible; perhaps not for everybody but for an appreciable number of people, so if you think that it’s a human right to have that kind of a life, then you have on the face of it a justification for capitalism. There has to be something pretty powerful to overturn or override that.

For the full interview, from which the above is quoted, see:
Vane, Howard R., and Chris Mulhearn, interviewers. “Interview with Edmund S. Phelps.” Journal of Economic Perspectives 23, no. 3 (Summer 2009): 109-24.
(Note: ellipsis added.)