Global Macro Monitor

Creative destruction refers to the incessant product and process innovation mechanism by which new production units replace outdated ones. It was coined by Joseph Schumpeter (1942), who considered it ‘the essential fact about capitalism’.

The process of Schumpeterian creative destruction (restructuring) permeates major aspects of macroeconomic performance, not only long-run growth but also economic fluctuations, structural adjustment and the functioning of factor markets. 

At the microeconomic level, restructuring is characterized by countless decisions to create and destroy production arrangements. These decisions are often complex, involving multiple parties as well as strategic and technological considerations. The efficiency of those decisions not only depends on managerial talent but also hinges on the existence of sound institutions that provide a proper transactional framework. Failure along this dimension can have severe macroeconomic consequences once it interacts with the process of creative destruction — MIT

We are reposting our Creative Destruction 2.0. piece below for some background.

We are 100 percent for all the economic cleansing, efficiencies, and advances that creative destruction and technology brings. In fact, it is not too different from opening up industries to foreign trade competition.  The consumer gets lower prices and forces domestic producers to buck up and put out a better product at a lower price or be destroyed.  Creative destruction brings with it a tremendous amount of both positive and negative externalities, such as the companies and workers subject to creative destruction and free-trade getting hurt.

The government needs a better plan and policy to embrace it and help ease the transition of those displaced in its wake rather than trying to ignore, deny, stop, or stymie it.   The Yang Gang are the only ones, at least we see, who seem to understand what is coming.

Maybe Yang becomes Secretary of Labor if the Dems win the White House in November and maybe he does even if they don’t.

We were also a bit heartened by the following Gizmodo piece on Monday.

Of course, the blowback has already begun,  “too unrealistic, a slap in the face to coal miners…blah, blah…”   Yes, it is probably difficult for a 50-year old coal miner to learn Python (really not that hard, BTW).  But it’s a start, and better than the Luddite promise to restore their jobs, which are never coming back.

We can start by helping to train their children to be better prepared to enter the new economy.  Not endorsing Uncle Joe, here, and not saying we will or won’t vote for him.  You decide. 

By the way,  coal mining payrolls are down 70 percent since April 1985 and only 2.4K coal mining jobs have been created since President Trump took office and promised to make coal country great again.  A very Luddite and a very difficult proposition, by the way, especially for an energy sector to make it back to its glory days when its cleaner-burning competitor, natural gas, is experiencing some of its own creative destruction from the fracking boom.

Natural gas prices are scraping at the bottom of generational lows, falling 85 percent from their 2008 highs just before the Great Financial Crisis (GFC).

Our coal miner rant is in honor of our good friend and great Marine from W. Virginia – CK – who knows first hand the pain suffered in coal country.

Roaring 20’s 2.0

Our bet is the Roaring ’20’s 2.0 are going to experience creative destruction like we have never seen.  We are already experiencing the toxic cocktail of creative destruction and the failure of government policy to respond to its negative externalities resulting in economic and political populism that risks taking us back to the dark ages.  Policies based on fact based reality is our only hope.

Most of the pols will do nothing to lead on this issue but rather attempt to exploit the rage with conspiracies, blaming others, and promise a golden age of Christmas past.

Long live the Luddites!  We certainly hope not!

What camera companies?

Hat Tip:  Andrew Chen  @andrewchen

It’s the time frame, stupid.

One should always qualify returns with different time frames.

These days it’s easy to simply buy an index fund, and your returns should (roughly) match the market. But you can significantly boost your returns by picking above-average stocks. To wit, the Eastman Kodak Company (NYSE:KODK) share price is 86% higher than it was a year ago, much better than the market return of around 29% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! In contrast, the longer term returns are negative, since the share price is 71% lower than it was three years ago. – Simply Wall St., Jan. 2020

Creative Destruction 2.0

R.I.P, Eastman Kodak, may you rise like a Phoenix out of bankruptcy.   If only you were owned by the government,  Larry Wood, as pictured below, might still have his job doing the same work he was doing in 1968.

(click here if charts are not observable)