The Power of Creative Destruction

Economic Upheaval and the Wealth of Nations

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This book was one of the nominees for the 2022 Hayek Book Prize, so I thought I'd give it an Interlibrary Loan try. It came up I-95 from UMass Dartmouth, and… well, it's one of those "wish I'd liked it better" books.

It purports to be an economic policy guidebook about the future of capitalism. It adopts Schumpeter's terminology of "creative destruction", the displacement of old technologies and employment by innovation. That can (and does) lead to greater overall prosperity for the participants; it arguably is tough on the businesses and people who were making a decent living until those dang new-fangled ways of doing things caused all the upheaval.

The authors argue for a highly-regulated capitalism to deal with problems like climate change, inequality, and unforeseen catastrophes (like Covid). They highly recommend a strong safety net for innovation-displaced workers (dubbed "flexicurity" after the Danish policies they really like).

So, basically, an argument for Elizabeth Warren-style stakeholder capitalism. I'm pretty sure she wouldn't find much to disagree with here. I, on the other hand, am surprised about the Hayek Book Prize nomination. (Hayek does show up, but not until page 294 or so, where his insights into governance are discussed.)

Some random thoughts:

A back cover blurb from Joel Mokyr compliments the book's "accessible prose". Which is nice, and sort of accurate: there are no particularly advanced concepts here. (Unless you consider graphs to be advanced. Lots of those.) But accessible prose can also be pretty boring, and that's the case here. The authors make Hayek look like Lee Child in comparison. (I wonder if the original French version was livelier and the translator squeezed all that out?)

I was puzzled by notable absences. An early chapter discusses economic "takeoffs": the causes of phenomenal increases in general prosperity around the world. Missing entirely from that discussion: Deirdre McCloskey. Maybe the authors disagree with McCloskey's explanation of what she calls the "Great Enrichment". Fine, but let's have that discussion instead of ignoring her theories. Equally ignored is the less-capitalist economist Mariana Mazzucato, who's written well-known takes on entrepreneurship and innovation. Basically, it seems the authors are reluctant to deal with counter-narratives.

The concept of "path dependence" is central to a lot of the book's argument. Understandably; when people are wedded to an inferior technology it can slow or prevent better ones from being adopted. Unfortunately, their Exhibit A for path dependence (they deem it a "glaring example") is a hoary one: the QWERTY keyboard saddling us with inefficient typing when the Dvorak layout is obviously superior. I find a Reason article from 1996(!) by Stan J. Liebowitz and Stephen Margolis to offer a serious and plausible rebuttal to that myth: Typing Errors. (They also discuss why the myth is so seductive to free-market haters.)

The authors take as a given that "inequality" is bad. The (to my mind sensible) view is that it's OK if it drives overall prosperity. Poverty is the actual problem, and the superior way to deal with that is…?

The authors have a yen for statist interventions. As far as USA stuff goes: they like DARPA, and that's a pretty plausible example. But they ignore (say) the Export-Import Bank and other corrupt boondoggles wasting taxpayer money on the politically well-connected.

The authors are also full-fledged climate hysterics. More nuanced views of the Lomborg/Koonin stripes are, yup, ignored. But "climate change" is yet another excuse for them to recommend (yup) increased government spending on R&D, mandates, subsidies, regulations, etc.


Last Modified 2024-01-16 3:53 PM EDT