Archive for October, 2014

You’ve Got Mail

Youve got mail

Animal Spirits is the interaction of humans acting in their own self interest which absent government interference drives the economy. – source: David K. Blakelock

On Monday night I was watching “You’ve Got Mail” with my wife and daughter. It was a final family event before my daughter went back to college after a long weekend home. If you aren’t familiar with the movie, it is a “Chick Flick” from 1998 starring Tom Hanks and Meg Ryan.

The major plot line involves Tom Hanks running a big box bookstore (Fox Books) and putting this small independent store (Shop Around the Corner) run by Meg Ryan out of business.   With the exception of Tom Hanks not being evil it follows the stereotypical big bad business picking on the little guy troupe.

But watching the movie in 2014 it is actually amusing. The two big companies in the movie are AOL and Fox Books. Back then everyone thought AOL was indestructible and Barnes and Noble was the juggernaut driving all those quaint independent bookstores out of business. Where are they now? Two companies that everyone feared are insignificant in their industries a mere 16 years later!

How can that be?

It’s called Creative Destruction. Creative Destruction was a term coined by Economist Joseph Schumpter and it typically used by economists to describe the messy way that Free Market’s deliver progress.

I’ve been around 53 years and 2 weeks and it seems like every time a company is declared indestructible you just need to wait 3 – 5 years and you start to see cracks.

When I was a young-un it was Sears and General Motors. Sears was the largest retailer in the world until 1989 and during the 60’s and the 70’s there was a lot of handwringing about them controlling different markets like appliances, tools and bicycles. Any one worried about them now?

In 1989 they were surpassed by Walmart. The 90’s and 2000’s were Walmart’s time. They are still huge and can move markets but I don’t see people worried about them taking over the world anymore. There are cracks.  Toys R Us was indestructible in Toys and Best Buy and Circuit City were indestructible in Electronics. Oops.

It’s not only retail, look at technology. IBM, DEC, and Microsoft all were indestructible until they weren’t. Now its Google, Facebook and Apple who are going to take over the world. (Apple shouldn’t even be in this conversation because they don’t even have 50% share of any market.)

The point is we are constantly holding up these companies as big and bad that will take over the world unless the government does something. And all we really need to do is wait a couple of years and things change. Complacency sets in or a new upstart comes along or the customer’s habits change. That’s called progress. That’s called Creative Destruction.

Yes, it’s messy. People lose their jobs. Investors lose money. But it’s a necessary evil.   Progress can not happen unless the old is stripped away and the assets are reallocated to a better use. And as painful as it is for an individual it is actually the asset of the people that is the most important to reallocate.

So, where’s the creative destruction in government? Where’s the government program that is replaced by something better? Where is the example of two competing programs slugging it out in the market place of ideas? It doesn’t happen. And that is the fundamental weakness of any government program. They are propped up so nobody ever loses their job. No bureaucrat ever has to admit that there is a better way. No politician every has to explain to the voters what happened. It’s fundamentally the reason why we need more free market in the government not less. Why patient centered health care will work better than Obama Care. Why vouchers will work better than the public school system. It’s called competition and creative destruction is part of that.

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