Title: destructive creation
after a slow start, the following article is pretty good, except for its constant mis-use of the word efficiency to mean lowest private costs of business (short-term profit maximization).
June 8, 2003/New York TIMES Magazine
The Sink-or-Swim Economy
By HARRIS COLLINGWOOD
What is it with this economy, anyway? Going strictly by the numbers, the most recent recession has been mild in comparison to previous downturns. Since the economy peaked in March 2001, the major markers of economic health -- industrial output, personal income and wholesale and retail sales -- have all traced smaller declines than in the average post-World War II recession. That's why many economists, among them Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, are inclined to dismiss today's complaints about economic stress and anxiety. ''People got spoiled by the 90's boom,'' Frankel says. ''They forgot what recessions are like.''
But Frankel concedes there's something odd about this latest economic decline. After a short-lived retreat in 2001, gross domestic product after adjustment for inflation actually grew throughout 2002 and managed a 1.9 percent gain in the first quarter of 2003. Yet the economy shed more than 500,000 jobs between January and April. And as Frankel notes dryly, ''Wages are not doing so well, either.'' The latest evidence of wage stagnation: the Labor Department's report last month that the average weekly paycheck, once inflation and seasonal factors are considered, shrank 0.3 percent from March to April of this year. All the contradictory signals have economists wondering what manner of beast stands before them. ''In recent economic history,'' says Robert Hall, an economist at Stanford University's Hoover Institution, ''there's been nothing quite like this continued modest G.D.P. growth combined with continuing declines in employment.''
Different economic indicators have pointed in opposite directions before, of course, but something other than the usual short-term statistical noise is at work here. What's weird, and deeply unsettling, about today's economy is that the big picture bears so little resemblance to the small picture, that is, to everyday life. The big picture shows the economy tracing a gentle, rather lazy slope -- a few tenths of a percentage point up or down, nothing too drastic. Closer to ground level, meanwhile, the action is nonstop and frenetic. At any given moment, some people and businesses are enjoying outrageous good fortune. Others are falling under a rain of slings and arrows.
But when the people making money faster than they can count it are placed, statistically speaking, alongside the people reduced to counting every penny, all that up-and-down activity averages out to something that looks like stability. Economists have a term for the local-level volatility that affects individual firms but doesn't show up in the big-picture statistics. They call it ''idiosyncratic volatility,'' and it is the signature of our economic age. Not to mention the source of much of our anxiety.
Alan Greenspan, chairman of the Federal Reserve Board, noted our idiosyncratically volatile time in a 2002 speech in which he reviewed the behavior of the U.S. economy over the past two decades. Technological innovation, as well as deregulation and trade liberalization, ''fostered a pronounced expansion of competition and creative destruction,'' he observed. ''The result through the 1990's of all this seeming-heightened instability for individual businesses, somewhat surprisingly, was an apparent reduction in the volatility of output and in the frequency and amplitude of business cycles for the macroeconomy.'' Translated from Fed-speak, that means that for the past 20 years, individual companies have prospered or failed, entire industries have grown up while others have vanished and, when all that frantic sinking and swimming in the economic waters is plotted as a graph of overall output, it looks like a gently rising curve. Meanwhile, the periods of economic expansion keep getting longer, while the recessions get shorter and less severe.
That's the sign of a robust system, says Michael Mauboussin, who is paid by Credit Suisse First Boston to think big thoughts about markets and financial behavior. ''It takes two essential features to make a system robust,'' he says. ''You need diversity, and you need interaction. That describes the American economy. You have diversity, a lot of local agents doing their own thing based on local information. And these agents interact in the marketplace; at some point, two agents will meet at a price. Then you have a big diversity in outcomes -- some buy, some get bought, some win, some lose -- and that makes for a robust, stable system.'' A few lines of John Ashbery's seem to apply: ''The whole is stable within/Instability . . . /a Ping-Pong ball/Secure on its jet of water.''
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