An article in the WSJ

The Wall Street Journal ran a story yesterday of import.  It is entitled, “Economists Expect Shifting Work Force.”  In it, the article states that the consensus amongst economists is that fully 25% of the 8.4 million jobs lost so far in the recession will never return.

Analysis: While this article represents estimates by economists as opposed to cold, hard data, it is nonetheless worthy of comment as it highlights the nature of capitalism.  Joseph Schumpeter once wrote about capitalism in terms that are actually very descriptive.  Namely, he said that capitalism was all about creative-destruction.  Capitalism creates things anew and gets rid of that which doesn’t work.  That is, after all, the nature of capitalism: competition.  Competition in the business world leads to outcomes that are similar  to the natural world and its “natural selection.”  But capitalism is very different because the pace of change is so much faster than in the natural world.

In fact, one of the measures of health of capitalism is the degree off rapidity to which its businesses respond to change.  From the beginning off the blog I said that another Great Depression was impossible.  My reasoning was that businesses and governments have both better techniques for dealing with economic slowdowns than in the GD and they have much better access to information.  Its this latter point that the WSJ article supports.  With information in hand about inefficiency, businesses responded to the economic crisis very quickly.  No doubt the rapid response also made the recession happen faster, too.  However, my counter-intuitive point is that the economy not replacing 25% of the jobs lost is a good thing.

This is because those jobs represented the parts of capitalism that were no longer leading to economic growth, or that were nearing no longer contributing to economic growth.  Not only that, but for the economy to re-emerge from this recession in a healthy way, it will have to have created new, better jobs.  Unfortunately, its my guess that this process will take a long time.  Yes, the economy will definitively emerge from recession (as opposed to just the fourth quarter’s massive inventory rebuild), probably in the late 2010.  However, for there to be new innovation and new industry created takes time.  The U.S. economic growth of the Bush years was largely debt-fueled and for the most part didn’t represent real economic growth – just a gigantic free-money/shop-til-you-drop fest.  So now businesses really have to innovate.  That is tough work.

Importance grade: N/A; economists’ estimates are not real data; but the WSJ story did highlight an important point.

I hope that each of you has a great day and weekend!

Jason