Creative Destruction – Page 23

Scientists Believe Life Emerged from a Process of “Creative Destruction” and Global Warming

Source of graphic: online version of the WSJ article quoted and cited below.

(p. A9) In a paradox of creation, new evidence suggests that devastating avalanches of cosmic debris may have fostered life on Earth, not annihilated it. If so, life on our planet may be older than scientists previously thought — and more persistent.

Astronomers world-wide have been transfixed by a roiling gash the size of Earth in the atmosphere of Jupiter, caused by an errant comet or asteroid that smashed into the gas giant last month. The lingering turbulence is an echo of a cataclysmic bombardment that shaped the origin of life here 3.9 billion years ago, when millions of asteroids, comets and meteors pummeled our planet.
. . .
But in their super-heated plunge through the atmosphere, these asteroids and meteors may have helped create conditions ideal for emerging life. “Everyone focuses on the meteor that hits the ground,” says geochemist Richard Court at London’s Imperial College. “No one thinks about the products of its journey that get pumped into the atmosphere.”
As they vented, they collectively could have imported billions of tons of life-sustaining water into the air every year, Dr. Court and his colleague Mark Sephton recently determined. They calculated that these showers of volatile rocks delivered 10 times the daily outflow of the Mississippi River every year for 20 million years. By analyzing the fumes emitted under such extreme heat, they discovered these rocks also could have injected billions of tons of carbon dioxide into the air every year.
Combined with so much water vapor, the carbon dioxide could have induced a global greenhouse effect. That could have kept any life emerging on Earth safely in a planetary incubator at a time when the planet might easily have frozen because the Sun radiated 25% less energy than today. “The amount of CO2 that was produced is about the same we produce today through fossil fuel use and we know that is a climate-changing volume,” says Dr. Court.
. . .
“It is literally a revolution in our ideas about how our solar system evolved,” says asteroid expert William Bottke at the Southwest Research Institute. “It could be that our form of life today — every living thing that we see today — is due to this bombardment that happened 3.9 billion years ago.”

For the full commentary, see:
ROBERT LEE HOTZ. “SCIENCE JOURNAL; Some Creative Destruction on a Cosmic Scale; Scientists Say Asteroid Blasts, Once Thought Apocalyptic, Fostered Life on Earth by Carrying Water and Protective Greenhouse Gas.” The Wall Street Journal (Fri., AUGUST 14, 2009): A9.
(Note: ellipses added.)

Creative Destruction Is Scary, but “Inevitable and Probably Even Desirable”

(p. 5) Development is a complicated phenomenon. Decades before he popularized the phrase “creative destruction,” Joseph Schumpeter, the Austrian School economist, was honing his ideas about innovation and disruptive change in “The Theory of Economic Development.”

Disruptive change, creative destruction, is what I’m living every day. In the big cities, India’s economic development can seem so simple. Business thrives, the middle and upper classes are celebrating, and the country is moving inexorably ahead.
But around here, where a way of life is disappearing and no one knows what will take its place, where someone seems to lose for everyone who wins, it’s a lot harder to know what to make of India’s economic boom. From my vantage point, development seems both wonderful and frightening; it is both inspiring and, at times, dispiriting.
People sometimes ask me how I feel about India’s economic development. I tell them the truth. I say I don’t know. I say I feel ambivalent about the passing of a world I knew as a child, a transition that I know is inevitable and probably even desirable. But I haven’t reconciled myself to it yet.

For the full commentary, see:
AKASH KAPUR. “An Indian Says Farewell to Poverty, With Jitters.” The New York Times, Week in Review Section (Sun., August 8, 2009): 5.

“Established Experts Flee in Horror to All Available Caves and Cages”

(p. 96) While science and enterprise open vast new panoramas of opportunity, our established experts flee in horror to all available caves and cages, like so many primitives, terrified by freedom and change.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Wattenberg’s Corporate Graveyard Illustrates Creative Destruction

The clip is the famous corporate graveyard scene from Ben Wattenberg’s 1977 “In Search of the Real America: A Challenge to the Chorus of Failure and Guilt.” The scene appears in the first of 13 episodes, the episode called “There’s No Business Like Big Business” which received the Tuck Award for the Advancement of Economic Understanding. The episode was produced and written by Austin Hoyt.
The corporate graveyard scene illustrates that under entrepreneurial capitalism, companies prosper that innovate in better serving the consumer.

URL address for graveyard scene video clip:
http://www.youtube.com/watch?v=DDMNYLiBexo

Wattenberg discussed the “In Search of the Real America” program, and the graveyard scene, in his recent book Fighting Words:

(p. 307) The central point of the program was that if big American corporations didn’t compete effectively, they suffer, and many would go out of business.

The producers had the wonderful idea of a visual of a graveyard on a foggy night, with headstones made from papier-mâché and a smoke machine providing the fog. I walked through the mock cemetery in a raincoat and read off the names of corporate tombstones, which included Central Leather (the seventeenth largest company in 1917), International Mercantile Marine (the eleventh largest in 1917), as well as failures like Baldwin Locomotive Works, American Woolen, Packard Motor Car, International Match, Pierce Petroleum, Curtiss-Wright, United Verde Mining, and Consolidation Coal.2 When we showed the Central Leather tombstone, a sound effect mooed; behind International Mercantile Marine’s, a steamship horn bellowed (I love shtick).
. . .
2 The program was based on an article by James Michaels, editor of Forbes. For many years, people would come up to me in airports, recalling that one scene and complementing me on the program.

Source:

Wattenberg, Ben J. Fighting Words: A Tale of How Liberals Created Neo-Conservatism. New York: Thomas Dunne Books, 2008.
(Note: ellipsis added.)
(Note: I have corrected a few obvious errors involving the omission and placement of commas in the list of companies in the text of Wattenberg’s Fighting book.)

. . . , Mr. Michaels graduated from Harvard in 1943 with a bachelor’s degree in economics.

Source:
RICHARD PÉREZ-PEÑA. “James Michaels, Longtime Forbes Editor, Dies at 86.” The New York Times (October 4, 2007).
(Note: of course, Joseph Schumpeter was a member of the Harvard faculty in 1943, and published the first edition of Capitalism, Socialism and Democracy in 1942.)

Source of book image: http://media.us.macmillan.com/jackets/500H/9780312382995.jpg

Economists Better at Measuring Destruction than Creativity

(p. 49) As entrepreneurs accelerate the processes of creative destruction that impel all economic advance, the economists measure the destruction, but not the creativity. They see the sinking value of existing capital but neglect the new ideas, hopes, enthusiasms, and plans of entrepreneurs.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

Today’s Middle Class Citizens of the U.S. Are Better Off Than Emperor Tiberius, Emperor Napoleon, and Saint Thomas Aquinas

In conversation at the HES meeting in Denver, Pete Boettke mentioned that the opportunity cost of blogging can be very high.
The passage below is from a draft of a key chapter of a long-awaited book authored by Berkeley economist and world-renowned blogger Brad DeLong. (At least in this case, Boettke is right.)

(p. 3) Could the Emperor Tiberius have eaten fresh grapes in January? Could the Emperor Napoleon have crossed the Atlantic in a night, or gotten from Paris to London in two hours? Could Thomas Aquinas have written a 2000-word letter in two hours–and then dispatched it off to 1,000 recipients with the touch of a key, and begun to receive replies within the hour? Computers, automobiles, airplanes, VCR’ s, washing machines, vacuum cleaners, telephones, and other technologies–combined with mass production–give middle-class citizens of the United States today degrees of material wealth–control over commodities, and the ability to consume services–that previous generations could barely imagine.

Source:
DeLong, J. Bradford. “Cornucopia: The Pace of Economic Growth in the Twentieth Century.” NBER Working Paper, w7602, 2000.

Do Recessions Sometimes Encourage Creative Destruction?

Source of image: online version of the NYT article quoted and cited below.

(p. B1) The dot-com bust earlier in the decade dragged down high-fliers like Sun Microsystems and America Online but set the stage for a new generation of Web powerhouses like Google and other innovative Internet software companies like Salesforce.com, founded on disrupting the status quo.

The recession of the early 1990s sent I.B.M., then the dominant force in technology, into a five-year tailspin. But it also propelled Microsoft and Compaq, later acquired by Hewlett-Packard, and Dell to the forefront of computing.

Indeed, Silicon Valley may be one of the few places where businesses are still aware of the ideas of Joseph Schumpeter, an Austrian economist who wrote about business cycles during the first half of the last century. He said the lifeblood of capitalism was “creative destruction.” Companies rising and falling would unleash innovation and in (p. B4) the end make the economy stronger.

Recessions “can cause people to think more about the effective use of their assets,” said Craig R. Barrett, the retiring chairman of Intel, who has seen 10 such downturns in his long career. “In the good times, you can get a bit careless or not focused as much on efficiency. In bad times, you’re forced to see if there is a technology” that will help.

So who’s up, who’s down and who’s out this time around? Microsoft’s valuable Windows franchise appears vulnerable after two decades of dominance. Revenue for the company’s Windows operating system fell for the first time in history in the last quarter of 2008. The popularity of Linux, a free operating system installed on many netbooks instead of Windows, forced Microsoft to lower the prices on its operating system to compete.

Intel’s high-power processors are also under assault: revenue tumbled by 23 percent last quarter, marking the steepest decline since 1985.

Meanwhile, more experimental but lower-cost technologies like netbooks, Internet-based software services (called cloud computing) and virtualization, which lets companies run more software on each physical server, are on the rise.

For the full story, see:

BRAD STONE and ASHLEE VANCE. “$200 Laptops Break a Business Model.” The New York Times (Mon., January 25, 2009): B1 & B4.

Larry Moss Made a Difference

Laurence S. Moss

Source of photo: http://www3.babson.edu/academics/faculty/lmoss.cfm

On Sunday (3/8/09) I learned that Larry Moss passed away on February 24, 2009.
Larry was full of the joy of life. He was intense. He was an amateur magician, and a wit, and an energetic conversationalist. I used to run into him once a year at the History of Economics Society meetings, and always enjoyed our conversations.
He was a neo-Austrian, though not “pure” enough for some of the ultra-Rothbardians. I first met him at a long-weekend seminar in Austrian economics when I was a graduate student, and he was a presenter.
I remember that he and I thought that the dialogue would be richer, and the neo-Austrian position ultimately strengthened, if its defenders understood better some of the alternative positions. So we announced a kind of rump session during one of the free-time periods. During this session, Larry gave the attendees a brief summary of what Walras had been up to, and I summarized Becker’s paper on the robustness of the law of demand to various forms of irrational and habitual behavior.
If memory serves, we suffered some mild heckling, and Larry was more severely criticized for disloyalty to the cause. (I cannot prove it, but I believe he paid a price for that in terms of invitations to future similar gatherings.)
I did not follow Larry’s research systematically, but know that he wrote the definitive account of Mountifort Longfield’s economics. He also had a nice, early paper in the JEL on the uses of film in teaching economics.
He took Schumpeter seriously, and wrote the script for the wonderful Schumpeter tapes in the Knowledge Products series on great economists that Kirnzer edited.
A couple of year’s ago, I invited Larry to participate in the Schumpeter session that I organized at George Mason’s Summer Institute for the Preservation of the History of Economic Thought. He initially agreed, but then had to withdraw because of his health.
More recently, I submitted one of my more idiosyncratic efforts (on the career consequences of writing on polywater) to the journal that Larry edited. I received excellent comments, and the editorial process was handled with grace and efficiency.
Larry was one of the “good guys” in many different ways, and the world is worse for his passing.

Here are a couple of Larry’s more obscure writings, that I have found useful:
Moss, Laurence S. “Film and the Transmission of Economic Knowledge: A Report.” Journal of Economic Literature 17, no. 3 (1979): 1005-19.
Moss, Laurence S. “Review: Robert Loring Allen’s Biography of Joseph A. Schumpeter.” American Journal of Economics and Sociology 52, no. 1 (1993): 107-18.

The reference to Larry’s Schumpeter tapes is:
Moss, Laurence S. Joseph Schumpeter & Dynamic Economic Change: Capitalism as “Creative Destruction”. Nashville, TN: Knowledge Products, Inc., 1988. audio.

A Toast to Schumpeter on His Birthday (February 8, 1883)

Source: scan (and crop) of the cover of the May 23, 1983 issue of Forbes .

In the May 23, 1983 issue of Forbes there appeared a now-famous essay by the late and great management guru Peter Drucker in which he pointed out that 1983 was the centennial of the birth of both John Maynard Keynes and Joseph A. Schumpeter. He noted that in the decades since the great economists’ passing, the academic and policy worlds worshiped at the feet of Keynes, and all but ignored Schumpeter (hence the many candles in front of the Keynes portrait on the cover, and the single, small candle in front of the Schumpeter portrait).

But Drucker argued that the world had gotten it wrong. Schumpeter was more important because he had understood a crucial truth: the process of creative destruction is indeed the essential fact about capitalism.

The reference for the original Drucker essay is:
Drucker, Peter F. “Modern Prophets: Schumpeter or Keynes?” Forbes, May 23, 1983, 124-28.

The reference to the reprint of the Drucker essay is:
Drucker, Peter F. “Modern Prophets: Schumpeter or Keynes?” In The Frontiers of Management New York: Penguin Putnam, Inc., 1999, 104-15.

A typo-laden version of the essay has been posted on the web at:
http://www.peterdrucker.at/en/texts/proph_01.html

(Note: I thank Aaron Brown for alerting me to the neat cover that appears at the top of this entry).

Inventors Move from Declining Industries to New, Expanding Industries

Petra Moser’s comments (see below) about inventors applying similar ideas to different industries seem complementary to Burke’s emphasis on the importance of serendipitous “connections.” An inventor exposing herself to many industries’ problems and products, would be more likely to see additional applications for inventions originally developed for another industry.

(p. 3) By some logic, there is no earthly reason why bicycles should still exist.

They are a quaint, 19th-century invention, originally designed to get someone from point A to point B. Today there are much faster, far less labor-intensive modes of transportation. And yet hopeful children still beg for them for Christmas, healthful adults still ride them to work, and daring teenagers still vault them down courthouse steps. The bicycle industry has faced its share of disruptive technologies, and it has repeatedly risen from the ashes.
. . .
“Much of the history of the ‘American system of manufacturing’ is the story of inventors moving from a declining industry to a new expanding industry,” says Petra Moser, an economic historian at Stanford who studies innovation. “Inventors take their skills with them.”
Gun makers learned to make revolvers with interchangeable parts in the mid-19th century, Ms. Moser says. Then those companies (and some former employees, striking out on their own) applied those techniques to sewing machines when demand for guns slackened. Later, sewing machine manufacturers began making woodworking machinery, bicycles, cars and finally trucks.
. . .
Meanwhile, we’ve already seen some of the “destruction” half of Joseph Schumpeter’s famous “creative destruction” paradigm, with many newspapers cutting staff and other production costs. Unfortunately for newspapers, historians say, the survivors in previous industries facing major technological challenges were usually individual companies that adapted, rather than an entire industry. So a bigger shakeout may yet come.
But perhaps the destruction will lead to more creativity. Perhaps the people we now know as journalists — or, for that matter, autoworkers — will find ways to innovate elsewhere, just as, over a century ago, gun makers laid down their weapons and broke out the needle and thread. That is, after all, the American creative legacy: making innovation seem as easy as, well, riding a bike.

For the full commentary, see:
CATHERINE RAMPELL. “Ideas & Trends; How Industries Survive Change. If They Do.” The New York Times, Week in Review Section (Sun., November 15, 2008): 3.
(Note: ellipses added.)

Car Bailout Destroys Dynamism of Process of Creative Destruction

(p. A29) 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.

But this, apparently, is about to change. Democrats from Barack Obama to Nancy Pelosi want to grant immortality to General Motors, Chrysler and Ford. They have decided to follow an earlier $25 billion loan with a $50 billion bailout, which would inevitably be followed by more billions later, because if these companies are not permitted to go bankrupt now, they never will be.
This is a different sort of endeavor than the $750 billion bailout of Wall Street. That money was used to save the financial system itself. It was used to save the capital markets on which the process of creative destruction depends.
Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. . . .
. . .
But the larger principle is over the nature of America’s political system. Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.

For the full commentary, see:
DAVID BROOKS. “Bailout to Nowhere.” The New York Times (Fri., November 18, 2008): A29.
(Note: ellipses added.)