Wednesday, June 10, 2009

Real World Economics: Creative Destruction

The economist Joseph Schumpeter popularized the term "creative destruction," by which he meant that innovation leads to the end of, i.e., the destruction of, a former method of doing things.

"Creative destruction" is not a cause of the business cycle, as some contend, but it is a very real phenomena that occurs through out the economy, resulting in a climbing standard of living.

I found this example in a Washington Post story where I least expected it.

The story, written by Petula Dvorak, recounts the experiences of a bellman at the Capital Hilton Hotel, Joseph Goverman, who is about to retire after 60 years at the hotel. The story caught my eye only because they had a picture of the bellman and I recognized him as the person I checked a bag with a few months back while I attended a conference at the hotel. So how do bellmen experience the impact of Schumpeter's creative destruction? Here's WaPo:

Wheeled bags began popping up in larger numbers at curbside in the 1990s, Goverman said.
People started handling their own bags, and the staff of bellmen at the hotel dropped from as many as 6 on duty at one time, to only two. Now some may wonder what happened to the bellmen who lost their jobs because of wheeled bags. Who knows? In a free market economy, their are always opportunities in other sectors. And the hotel had more money, that they didn't have to pay those bellmen, to spend in other sectors, as did guests who didn't have to spend the money on tips . In other words, wheeled bags freed up workers and money to shift to sectors of the economy that weren't served before because more bellmen were required than now.

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