Posts tagged ‘Low Destruction’

Arnold Kling Provides An Interesting Framework for Economic Growth

I thought this was a useful simple picture from Arnold Kling, vis a vis countries and their economies:

Low Creation High Creation
Low Destruction Corporatist Stagnation Schumpeterian Boom
High Destruction Minsky Recession Rising Dynamism

He suggests the US may currently be in the lower-left quadrant.  Europe and Japan in the upper left.   My sense is that China is in the upper right, not the lower right (too much of the economy is controlled by the politicians in power for any real destruction to occur).

Once a government gains powerful tools for economic intervention, it becomes politically almost impossible to allow destruction to occur, no matter how long-term beneficial it can be.  The US is one of the few countries in the world that has ever allowed such destruction to occur over an extended period.  The reason it is hard is that successful incumbents are able to wield political power to prevent upstart competition that might threaten their position and business model (see here for example).

It takes a lot of discipline to have government not intervene in favor of such incumbents.  Since politicians lack this discipline, the only way to prevent such intervention is by castrating the government, by eliminating its power to intervene in the first place.  Feckless politicians cannot wield power that does not exist (though don't tell Obama that because he seems to be wielding a lot of power to modify legislation that is not written into my copy of the Constitution.).