Saturday, November 9, 2013

Capitalism is a profit and loss sytem

When fools run businesses (and they assuredly do in every economic system imaginable), the task of the economic system is to get rid of the fools and their mismanagement as quickly as possible. The totalitarians in China do this by watching for spectacular failures, seizing the manager least capable of covering their tracks and killing them. Capitalists, for all their reputation for supporting a system that is veritably "red in tooth and claw"is kinder and gentler. Poor management leads to poor profits and eventual job destruction at the foolish manager's firm while new entrants create new jobs at different firms to take on the necessary tasks that would otherwise be left undone. This is done in a loosely coupled way with creation generally preceding destruction.

Job creation actually generally precedes job destruction because there could be a need for increased workers handling a task. The same system handles both circumstances, doing double duty. But non-economic preferences and circumstance lead to a general accumulation of fools. At some point the system tips over and you have a recession. Job destruction peaks, job creation dips, and we all learn who are the prudent and who are the fools. But there are worrying secular trends.

In a world which is supposedly changing faster and faster and requiring more nimble shifts of economic production, you would expect both creation and destruction to rise. They are clearly falling. In a world that was expanding its use of resources to accommodate the multi-billion person rise of the global middle class, you would expect the gap between job creation and job destruction to be widening. Instead the gap narrows.

This is the sophisticated sort of thing that we should be going on about in our cable TV shows on a regular basis. Instead we have a duller, slower, more foolish politics to go with our more dull and foolish economics.

HT: Instapundit