Friday, December 28, 2007

Schumpeter, innovation, and growth

David Brooks mentions Brad DeLong's review of a new 2007 book on Joseph Schumpeter. Brooks doesn't write much about it, but it's a good, quick read for those interested in economic growth.

I don't teach anything about entrepreneurship and competition to undergraduates in my intermediate macroeconomics class at Queens. But as Schumpeter and many others after him pointed out, the process of innovation produces losers as well as winners.

As reviewed by DeLong, Schumpeter thought democracies were ill-equipped to manage innovation by compensating the losers while rewarding the winners, and he apparently made many predictions about politics that were flat-out wrong. From an aggregate perspective, it appears that the American political system is successful at either compensating losers or minimizing their numbers.