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Auto Innovation

by Elaine Schwartz    •    Jan 5, 2011

Saying, “I believe the people who invented the auto cannot abandon it,” President Obama supported the bailout of General Motors.

Economist Joseph Schumpeter would have been horrified. The man who explained “creative destruction,” Schumpeter believed that economic growth depends on the pain of old industries dying and new ones taking their place.

In response, Obama might have pointed out that he preceded his supportive statement by referring to G.M.’s “bad decision-making” and the need for it to “re-tool” and “re-imagine.”

I suspect Schumpeter would have said, “Impossible!” 

But where does this leave us now? The government has bailed out G.M. and has recouped some of the money through G.M. once again becoming a public corporation. In China and India, G.M. is soaring. Domestically, led by full size pick-up trucks, sales rose.

But still, as economists, we should decide whether we support creative destruction.

The Economic Lesson

Joseph Schumpeter was a fascinating individual. Born in 1883, in what is now the Czech Republic, he was an academic superstar, an Austrian finance minister, a professor and a writer who wound up at Harvard. Asked about his aspirations, he answered, becoming the greatest economist, horseman, and lover in the world. Reporting on his progress, he said, “Things are not going well with the horses.”

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