Blog Post

AEIdeas

The Foundation for Economic Education featured an article a few days ago titled “The Iceman’s Job was Destroyed. Good!” by T. Norman Van Cott. The article was about the “creative destruction” that took place in the 1920s and 1930s when electric refrigerators replaced the old “ice boxes” and put thousands of ice companies and thousands of “icemen” (who delivered ice to people’s homes) out of a job. Here’s Professor Van Coot:

Or in the language of politicians and pundits, refrigerators and their producers “destroyed” icemen jobs. Nevertheless, most of us would say that Americans are better off as a result of electronic refrigeration. What about the icemen? Did they smoothly transition into production of refrigerators? Probably not. More likely they moved to their next best employment opportunity, and next best is precisely that, next best. In other words, icemen lost. Iceman received a smaller piece from a larger economic pie. A rising economic tide does not necessarily raise all ships. What about the number of lost icemen jobs compared to the number of refrigerator production jobs? Does it matter? Yes, but not in the way you think or wish it were. To wit, the fewer jobs associated with producing the refrigerators, the better! Having fewer people employed in producing refrigerators means people cannot only have superior refrigeration, but more of other things. This is how technological advances raise living standards. We ignore it at our peril. Less means more? You bet. That’s why University of California at Irvine economist, Richard McKenzie, could pen a Wall Street Journal op-ed some years ago titled “Help the Economy: Destroy Some Jobs.”

I was able to track down Richard McKenzie’s article online from the UM-Flint library and feature an except below. Although it’s almost 25 years old (it appeared in the May 14, 1992 issue of the WSJ), Richard McKenzie’s timeless insights about “creative job destruction” are still, if not more, as relevant today as they were in the early 1990s. In fact, we’re hearing both major presidential candidates doing a lot of promoting what McKenzie called “jobism” — the misguided “modern public-policy philosophy [and a successor to discredited mercantilism] that mistakenly makes the count of jobs the key measure of a country’s economic success or failure.” Here’s Professor McKenzie (emphasis added):

Economic progress and job destruction go hand in hand. Jobs are destroyed when a better mousetrap or computer program is developed or when work is made obsolete by more efficient or cheaper means of production. No country can afford an idle population. By the same token, no country can afford to treat jobs as so many ounces of gold that must be counted stored and protected from obsolescence. Job creation (and protection) is a favored goal of our leaders because it appeals to existing political interests and is seductively misleading and counterproductive. It is also one of the easiest goals to achieve. To create or protect jobs, all Congress has to do is to obstruct progress and kill or retard opportunities for competitiveness and entrepreneurial spirit. Job destruction is shunned as a national policy goal not only because it appears openly hard-hearted (which paradoxically it is not) but also because job destruction is so very difficult to achieve. Job destruction requires ingenuity, creativity and the courage to take a few risks that others will not take. It requires intensive study, hard work and detailed knowledge of the multitude of economic circumstances that can only be known by real people in the workaday hinterlands, not Washington. It requires, in short, the types of skills and understandings that are generally absent in political circles. Over the past several years, politicians and pundits have called for a renewal of “American competitiveness.” They don’t seem to get the underlying message in the country’s failures in domestic and international markets: America had been destroying too few jobs. Moreover, they have not yet realized that renewed competitiveness must be built on a commitment to progress, which means relying on people outside the political capitals. Revitalized competitiveness mandates a willingness to replace much that is old with much that is new. It requires widespread (not wanton) job destruction. And it means that we must view, for example, the loss of several hundred thousands of jobs in the textile automobile [MP: my update] industry over the past two decades as a measure of the success of the industry in dramatically improving productivity and maintaining its world-class status. When renowned Harvard Economist Joseph Schumpeter lauded the market is a system of “creative destruction” 70 years ago, he meant every word. Destruction — specifically job destruction – is pervasive to any economic system that is creative.

Bottom Line: To maximize economic growth, vitality, competitiveness, progress, innovation and dynamism, and raise our standard of living to the highest level possible, we should embrace Schumpeterian creative destruction in all its forms including job destruction. Too often, especially among the political elites, the tendency is to protect the status quo, entrenched industries and current jobs from the forces of Hurricane Joseph. Examples include cities that limit competition from ride-hailing services to protect legacy taxis, proposals from Donald Trump to protect American jobs with protectionist trade policies and tariffs, and the pervasive occupational licensing requirements in the US that protect incumbent industries and businesses from competition.