How to Survive "Creative Destruction": Clarifying Terms

The phrase “creative destruction” has become nearly ubiquitous in analyses of job losses in the domestic manufacturing sector or in states that once had a large industrial presence.  A generation of market-based economists, conservative and libertarian alike, have routinely used it to defend the new economic status quo of fewer jobs and stagnant real-income growth.  Yet the phrase, made famous by the Harvard economist Joseph A. Schumpeter (1883-1950) in his 1942 book, Capitalism, Socialism and Democracy, is one of the most misinterpreted terms of our time in the lexicon of economists.

Alan Greenspan referred to “creative destruction” more than a dozen times while he was chairman of the Federal Reserve.  In a September 8, 1999, speech in Michigan, he argued,

The quintessential manifestations of America’s industrial might earlier this century—large steel mills, auto assembly plants, petrochemical complexes, and skyscrapers—have been replaced by a gross domestic product that has been downsized as ideas have replaced physical bulk and effort as creators of value.  Today, economic value is best symbolized by exceedingly complex, miniaturized integrated circuits and the ideas—the software—that utilize them.  Most of what we currently perceive as value and wealth is intellectual and impalpable.  The American economy, clearly more than...

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