Creative destruction and the American Economy

When you are in the middle of a paradigm change you have a hard time seeing it. Today's Post has a front page story on the sputtering American economy, "Discouraging news on the economy," which indicates that policy makers don't understand what's going on.

1. We are continuing to de-emphasize manufacturing in our economy.

2. But the manufacturing we have is increasingly capital and knowledge intensive, meaning that fewer people are needed to build more stuff.

3. We were overbuilt in retail and failures of many companies ranging from Circuit City to Linens n' Things to regional department store chains have cut jobs.

4. People funded overconsumption ("Retailers report muted sales in May as shoppers face bad weather, worry over rising prices " AP story) through using their houses as a bank and constantly rising home prices enabled refinancing and cashing out equity, which for most regions of the United States ("12 cities reach lowest levels in 4 years; home prices rising only in DC, Seattle " AP story) no longer exists, so consumption is down.

5. And most importantly, every time we go through a recession, companies that were on the cusp of failing due to changing business models actually do fail.

6. Especially if they can't continue to raise funds and financing (a/k/a "credit crunch") to operate their businesses.

7. Although new businesses continue to develop and open and with time, will add employment.

E.g., I was drawn into an online discussion about the economic potential of the waterfront in Cambridge, Maryland because there is an RFP out by the Maryland Port Administration and because I did a commercial district revitalization framework plan for the community.

One of the people criticized the points I made saying that I didn't care about maintaining maritime-related industry. Hey, I have no problem with maintaining and developing maritime-related industries, the problem is that it too is a shrinking industrial sector.

Shipbuilding firms are failing (although I think this initiative, the North Coast Marine Manufacturing Alliance, in the northern US is interesting, although it focuses on leisure crafts, not big ships like the shipyard in Philadelphia that goes in and out of success). Aquaculture is somewhat successful but doesn't require a lot of labor--there is an oyster farming operation in Dorchester County now--but even Phillips seafood sources most of its crab from Asia these days, and overharvesting of crabs, pollution, etc., has decimated the fishing-oyster-crabbing industries in the Chesapeake Bay anyway.

That's reality. And acting otherwise doesn't help anyone.

The same goes for the restructuring of the American economy more generally. Especially given that it is gasoline-dependent, and because of increased global demand, prices are trending upwards.