July 24, 2003
Mr. Schumpeter, Call Your Office!
Fed President Robert McTeer, whom I hope will take over for Mr. Greenspan pretty soon, delivered a great speech to graduating Econ majors at the University of Texas. The whole speech is worth a read but my favorite line is:
"Economics majors understand the nonintuitive reality that real progress comes from job destruction. It once took 90 percent of our population to grow our food. Now it takes less than 3 percent. Pardon me, Willie, but are we worse off because of the job losses in agriculture? The would-have-been farmers are now college professors and computer gurus or singing the country blues on Sixth Street."
If the Economics major is acquainted with the theories of Joseph Alois Schumpeter, they grasp it. Schumpeter's known for his "Gales of Creative Destruction" and while Mister McTeer may be the first to use them against a country music legend, they show up about everywhere else.
I was reading a story of job layoffs at Kodak when the title of this column came to me. Some nine thousand in the film and film processing division will be let go this month. I feel sad for the people and have a certain empathy as it has been 18 months since I have had a regular paycheck. Politics and Economics both require a certain cold rationality that does not come naturally to me. Liberals will be in business for many years.
At the same time, this article, in the Wall Street Journal no less, read as if this were ample evidence that the slowdown is still in force. It is quite obviously a sign of wealth creation and economic vitality. Quick. Grab a 3 x 5" white index card with no lines on at least one side and a fine point marker and a ruler - got it? Great. Chart your film purchases over the last decade. The x-axis is time and the y-axis is the amount of film you bought that year. The area under the curve is your total film purchases in the last ten years and the slope of that line is why Kodak is releasing 9000 workers.
Ouch! I haven't bought any film in two years. I went to a pro studio to get band pictures done, and even in that last bastion of silver compounds and stop bath, the process was all digital. Five years ago, I bought a roll a month and considered myself a casual user. My childrearing relatives went through ten times that. Now it's all digital. The Kodak workers should write software, or start a web page to share and print pictures. Or open a scanning service to digitize all the pictures people took all those years with the products they used to make. Or better still, come up with the "Gale of Creative Destruction" that will relegate the digital camera to the trash heap.
Heartless. A digital Marie Antoinette: "let them write software!" (Yes I know it wasn't Marie Antoinette, but that's another day, another column.)
But the people would be better off writing software. It's a good job. It's better for the environment than heavy metals. It pays better. It adds wealth to the person and the community to replace 9000 film manufacturers with 9000 web geeks. Starbucks alone should generate another 0.17/share…
When you see the job losses, it's okay to feel bad for the workers. But always ask yourself if this is not a buggy-whip manufacturer that is having its capital reallocated to a better use. World market growing pains may hurt but they create wealth for all of us.
Last time: Checks and Balances
Next time: A Free Market Solution to SPAM