I was reading an Op-ed piece in the WSJ, about “What’s Killing Jobs and Stalling the Economy”.
The May jobs report was bad. The Op-ed piece, referred to an aspect of the nation’s history, and introduced me to the process called “creative destruction”. This process is believed to spread prosperity throughout the U.S. and the world.
Stating that over the past 30 years, with a couple of exceptions (the mid-1980s and the 2002-05 period), the concept of “creative destruction” and its impact has been waning. There has been a steady decline in business formation while the rate of business deaths has been more or less constant. Business deaths outnumber births for the first time since measurement of these indicators began.
So herein lays the paradox of progress. Our society cannot reap the rewards of “creative destruction” without accepting that some individuals might be worse off, and not just in the short term. At the same time, attempts to soften the harsher aspects of “creative destruction” by trying to preserve jobs or protect industries will lead to stagnation and decline.
We benefited as transportation improved from horses and mules to cars and airplanes, but all this creation did not come without destruction. Each new mode of transportation took a toll on existing jobs and industries. In 1900, the peak year for the occupation, the country employed 109,000 carriage and harness makers. In 1910, 238,000 Americans worked as blacksmiths.
| The Churn: Recycling America’s Labor | |||
| *. Fewer than 5,000. | |||
| Job Destruction | Now (2002) | Then | Year |
| Railroad employees | 111,000 | 2,076,000 | 1920 |
| Carriage and harness makers | * | 109,000 | 1900 |
| Telegraph operators | * | 75,000 | 1920 |
| Boilermakers | * | 74,000 | 1920 |
| Milliners | * | 100,000 | 1910 |
| Cobblers | * | 102,000 | 1900 |
| Blacksmiths | * | 238,000 | 1910 |
| Watchmakers | * | 101,000 | 1920 |
| Switchboard (telephone) operators | 119,000 | 421,000 | 1970 |
| Farm workers | 716,000 | 11,533,000 | 1910 |
| Secretaries | 2,302,000 | 3,871,000 | 1980 |
| Metal & plastic working machine operators | 286,000 | 715,000 | 1980 |
| Optometrists | 33,000 | 43,000 | 1998 |
| Job Creation | Now (2002) | Then | Year |
| Airplane pilots and mechanics | 255,000 | 0 | 1900 |
| Auto mechanics | 867,000 | 0 | 1900 |
| Engineers | 2,028,000 | 38,000 | 1900 |
| Medical technicians | 1,879,000 | 0 | 1910 |
| Truck, bus, and taxi drivers | 4,171,000 | 0 | 1900 |
| Electricians | 882,000 | * | 1900 |
| Professional athletes | 95,000 | * | 1920 |
| Computer programmers/operators/scientists | 2,648,000 | 160,613 | 1970 |
| Actors and directors | 155,000 | 34,643 | 1970 |
| Editors and reporters | 280,000 | 150,715 | 1970 |
| Medical scientists | 89,000 | 3,589 | 1970 |
| Dietitians | 74,000 | 42,349 | 1970 |
| Special education teachers | 374,000 | 1,563 | 1970 |
| Physicians | 825,000 | 295,803 | 1970 |
| Pharmacists | 231,000 | 114,590 | 1970 |
| Authors | 139,000 | 26,677 | 1970 |
| TV, stereo, and appliance salespersons | 309,000 | 111,842 | 1970 |
| Webmasters | 500,000 | 0 | 1990 |
http://www.econlib.org/library/Enc/CreativeDestruction.html
One simple explanation for the subpar new business formation growth is the ability and options for funding a new business. The real-estate values, and the imposition of tougher standards on personal credit cards, have constrained basic traditional sources of credit for small startups.
Banks have tightened lending criteria. Not to mention that they do not want to touch small loans; I have been told since the paperwork on a $10,000 deal is the same for the $1,000,000, why do small loans. So larger banks don’t want to bother with you, and many regional and community banks have disappeared.
So with this all in mind maybe we should start circling the family wagons and await the next depression.
Get as many incomes under one roof to be able to outlast the next financial apocalypse.