Here’s a letter to the Wall Street Journal:
Unsurprisingly, much wisdom is woven throughout my great emeritus colleague Vernon Smith’s counsel of hope about the post-COVID-19 economy (“The Economy Will Survive the Coronavirus ,” April 6). Reading it buoys my spirits!
Yet on one issue on which he’s optimistic I remain unconvinced. Vernon is correct that government-mandated shutdowns will, by destroying many businesses, speed the creation of innovative substitutes. But the process of creative destruction described by Joseph Schumpeter and rightly celebrated by friends of free markets works by first creating new substitutes – new products and new businesses – and then seeing which ones, in actual competition with existing products and businesses, consumers judge best.
In contrast to this process of creation preceding destruction, what’s happening now is destruction preceding creation. Unlike with true creative destruction, many businesses being destroyed today are not done in by market alternatives that prove themselves in competition to be superior; businesses destroyed today are done in, unilaterally, by government command. There’s far less reason for optimism that the resulting new products and businesses of the future will be worth the costs of the politically directed economic destruction now underway.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030