TRUMP UNDERSTANDS MORE ABOUT POLITICS AND MEDIA MANIPULATION THAN HE DOES ABOUT BASIC ECONOMICS

I’m truly happy for the Carrier employees in Indiana who kept their jobs because Vice-President-elect Pence and President-elect Trump intervened to keep Carrier from moving their operation to Mexico.

But all politicians Pence/Trump did was put off the inevitable.

Why?

Largely because of ‘Creative Destruction’, a concept economist and political scientist Joseph Schumpeter coined in 1942:

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

‘Creative Destruction’ describes the process in a free economy where constant product and process innovations and new production techniques constantly replace older, outdated, less efficient ones.

‘Creative Destruction’ is a big reason why we enjoy increasingly higher quality products and services at less cost.

Computers, big-screen TV’s, appliances, home electronics, automobiles, medical treatment breakthroughs – the list of inventions and innovations is virtually endless that have become widely available to society because of entrepreneurs and inventors being free to create new, better products and services that people want.

It would not be possible for a society to increasingly flourish with the ever-increasing quality in the products and services it enjoys if it also did not eliminate the older, outdated, less efficient ways of providing products and services.

And this is where Pence/Trump’s Carrier deal comes in.

It’s not for nothing that Carrier considered moving their operation to Mexico. Of course, there will be those who will say it’s because Carrier executives were greedy, etc, but more typically corporations think of taking action such as this because they’re trying to create and keep a competitive edge against others who are competing for customer’s business – in this case, it’s reported Carrier would’ve saved $65 million in labor costs by moving to Mexico.

What Pence/Trump did with this Carrier thing was they focused on the tree and lost sight of the forest. Yes, it makes political/short-term sense in that Pence/Trump could claim they saved American jobs and they got positive media attention and it gave them the chance to spike the football in the end zone.

But the forest is this: to survive, Carrier must successfully compete against other manufacturers of heating and air conditioning units. Pence/Trump’s action has the effect of putting off the inevitable, which is that Carrier must do what it must do to remain competitive, or they will become the part of the ‘Creative Destruction’ process that eliminates those entities that can’t or won’t successfully compete for customers.

Most everyone remembers the ballad of John Henry, a brawny man competing against the steam drill to drive railroad spikes. It’s a romantic song extolling the virtues and dignity of mankind against pitiless technology.

Any time there is some innovation, scientific breakthrough, or technological advance, it affects how work gets done, and hence it affects real human beings. For those making top-shelf buggy whips when the Model ‘T’ came along, it meant they needed to adapt, or perish. For those working in Blockbuster Video stores when Netflix came along, it meant they needed to re-tool themselves and find another job, because, ‘Creative Destruction’.

And this is where Pence/Trump get it wrong with their Carrier deal: they’re trying to keep John Henry on the job driving railroad spikes when there’s a steam drill than can do the job better/cheaper/longer/etc.

Instead of simply putting off the inevitable for immediate political and media gain, it would be wiser for government, businesses, institutions of learning/training, and individuals to recognize the reality of ‘Creative Destruction’ and re-tool themselves to become more adaptable, more able to respond to changes and disruptions, and modify the social safety net to more effectively respond to those in their time of need while avoiding the mistake of the safety net becoming a long-term safety ‘hammock’.

The future flourishing of our society depends on us answering these questions the right way. We citizens must always remember that regardless of whether a politician has a ‘D’ or an ‘R’ after their name, they flourish more by telling us what they think we want to hear, not what is the truth/what we need to hear.

‘Creative Destruction’ is the economic equivalent of gravity and the sun rising in the east. To continue to flourish, we need to fashion our societal institutions and personal values and behavior in recognition of this fact, regardless of what the latest politician wants to try to sell us.

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