Okay, in light of the economic apocalypse, I just can’t resist quoting a couple of paragraphs from the final chapter of my book, Slackonomics.
In these two graphs, I am writing about the economist Joseph Schumpeter, who used the phrase “creative destruction” to describe the process by which capitalism renews itself, often through violent convulsions that cause quite a bit of pain. He was originally describing the industrial revolution, but I am repurposing the phrase by calling it creative destruction 2.0 to describe the global/technological revolution:
This is truly a new era of creative destruction, not only altering everyday life for Generation X—from how we work, where we live, how we play, when we marry and have children, to our attitudes about love, humor, friendship, happiness, and personal fulfillment—but the world as we know it. Powerful forces have been unleashed in our lifetime, and to assume that it’s all going to work out, that creative destruction will continuously renew the economy via radical transformation from within, could turn out to be the ultimate in naivete.
Schumpeter argued strenuously in favor of capitalism at a time when socialism and communism were considered viable options (“the capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”) But he was also well aware of its shortcomings. Not only do people and industries get hurt in the churn, they become “free to make a mess of their lives” with enough “individualist rope” to hang themselves. What’s more, capitalism sets up a tension “between two interests in society, the interest in present enjoyment, and the interest in the nation’s economic future.” Schumpeter actually predicted that capitalism couldn’t survive because governments would eventually quash creativity, an understandable conclusion when communism was a serious consideration. What Schumpeter didn’t count on, however, is that capitalism can overwhelm democracy, and in the current age of creative destruction 2.0, it’s working far too well.
We have entered a whole new era of creative destruction, folks. Here are a couple of paragraphs from an article in today’s Times:
The Bush administration on Saturday formally proposed to Congress what could become the largest financial bailout in United States history, requesting virtually unfettered authority for the Treasury to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States. …
A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. It represents more than $2,000 for every man, woman and child in the United States.
And from the Economist:
Ten short days saw the nationalisation, failure or rescue of what was once the world’s biggest insurer, with assets of $1 trillion, two of the world’s biggest investment banks, with combined assets of another $1.5 trillion, and two giants of America’s mortgage markets, with assets of $1.8 trillion. The government of the world’s leading capitalist nation has been sucked deep into the maelstrom of its most capitalist industry. And it looks overwhelmed.
I’ve now read the Times, WSJ, the Economist and the Financial Times, and still I simply cannot get my head around what is happening. I suspect there’s a lot of people who are IN CHARGE of financial institutions and government agencies who can’t, either.
As I argue in my book Slackonomics, it could very well be up to Generation X to bring the economy back from the brink. I guess that was overly optimistic. In fact, it is going to be up to us to rebuild the economy from the ground up.