Creative Destruction, once again

Are Depressions Necessary?

Is the title of an article by Christover Hayes in the American Prospect, and it revisits the issues of Schumpeter's creative destruction. We have gone over this time and again, arguing from the standpoint of the natural asymmetry of economic change.

Krugman's criticism of creative destruction, as quoted in the article seems oddly out of place with his agglomeration thesis. Krugman, on the one hand, gets the Nobel for showing that increasingly dense interconnectivity among firms yields efficiency gains and agglomeration. The he is quoted in the article as hoping for the managed unwinding of these agglomerations when the economy encounters a new productive technology. How does Krugman intend for that to happen?

Mark Thoma implies that new productive processes need to be introduced over time, slowly. How does he intend that to happen? How would Thoma slowly introduce the personal computer into firms where they replace the mainframe when many firms had no mainframes to begin with. How does Thoma propose that we slowly introduce the automobile to replace the street car?

I fear that economists who lack theory resort to magic, the social director. One day, in my hometown in the late 20s, commercial radio appeared for the first time. The next day, economic decisions changed. Would Thoma have the social director monitor commercial broadcasts?

If we allow freedom of thought, then we will have productivity shocks. Short of running the economy like a North Korean work camp, there is no easy reversal of agglomerations. Krugman and Thoma should know that.