Creative Destruction In Hold – Slows Economic Growth

A problem, already known about, has been festering and getting worse. Now it seems it is more clearly explained and worse, not just a US problem. The FT Big Read today in the US print edition of the Financial Times, Decline of Start Up Nation, explains the sad decline of the growth of new start up firms across America.

To be fair, though the absolute density of start ups per 100,000 residents has fallen from over 160 in 1978 to about 80 in 2013, there are pockets of recovery in a few places in the US. But the facts speak for themselves. The article lists a series of reasons for the loss of entrepreneurial mojo, that sits at the heart of Schumpeters’ creative destruction (1942).  Creative destruction describes the cycle of innovation, growth, maturation, decline, and recycling of resources for the next round of innovation. Creative destruction is central to capitalism and without it, all manner of anti-capitalist rigor mortis sets in.
First the causes: there are several listed:

  • Change in education and demographics of our innovators and entrepreneurs
  • Lack of access to capital
  • Increased government bureaucracy and red tape

Now the results:

  • Entrenchment of large firms and subsequent maintenance and growth of lobby-based policy reinforcement
  • Polarization of income and wealth, where the investor class accentuates gaps to middle and lower classes
  • Weaker economic growth
  • Which then leads to majority pushing for socialist re-balancing polices that accentuate the problem even further

And in the most recent exceptional economic and business cycle:

  • Finally economic failure leads to market distorting polices of central banks who act in lieu of effective public policy needed to reestablish growth

It is difficult to determine what starts this entire cycle. It is quite likely that any one trigger along the path will set in motion the others. The fact is that our US economy, and to a large extent, the western developed economies, are in a similar bind and firmly at the end of the cycle. There seems no way out. Worse, using the recent Bank of England response to Brexit jitters and a new reduction in interest rates and more quantitate easing, the establishments only has one response to all challenges and it is to administer more of the same medicine.

I am not a fan of Hillary or Donald, but we need a schism to break out of this mound. Clinton promises more of the same; the promise of Trump is different. Question is, is Trump going to lead to a refreshing new cycle of growth, or mayhem? Is the gamble worse than more of the same weakness under Clinton?

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