Dynamism and Enemies of Capitalism

Another excellent podcast this week at EconTalk. Russ Roberts has no guest this week, but instead delivers a monologue explaining why most of the popular criticisms of capitalism are quite wrong.

One thing that Robert's does not go into here is how individuals can be worse off due to creative destruction. Their children and grandchildren will almost certainly be better off, but in the short-run lots of people suffer due to trade.

Say tomorrow, the job of economist is made obsolete and replaced with a machine (stupid example). Those people who are employed in economists right now are doing it because it is the best that they can do right now and the profession they seem to enjoy the most. The former economists will all have to find other employment as journalists, bankers, retailers, etc. They’ll be alright and society will be better, but probably their lives would have been better without the economics machine.

Of course, most opponents of trade do not realize that their jobs were created in the first place because of trade, and new and better jobs will be created by the expansion of the market. They don’t know or they don’t care. The children of the previous generation of innovators often curse today's entrepreneurs and want to preserve the status quo. The same goes for lower level workers in mature industries. Saddle-makers did not like early autoworkers. Short-term losers in a capitalist economy are rationally (although selfishly) fearful of the dynamism of capitalism. So, a basic problem with capitalism is that it is constantly creating an opposition to itself. This is Schumpeter’s idea, and I agree with it. To paraphrase Milton Friedman, capitalism would be long gone if it weren’t so much and so obviously better for society especially in the long-run.