U.S. Economic System, Creative Destruction
new jobs available, Erie Canal, greatest strengths, clothing manufacturing, Pony Express
Taking advantage of new opportunities while curtailing production of things that are no longer in demand or no longer competitive was described as the process of creative destruction by 20th century Austrian-American economist Joseph Schumpeter. For example, Schumpeter discussed how the United States, Britain, and other market economies helped many new businesses to grow by building systems of canals (such as the Erie Canal) during the mid-19th century. But then the canal systems were replaced or “destroyed” by the railroads, which in turn saw their role diminished with the rise of national systems of highways and airports. The same thing happened in the communications industry in the United States. The Pony Express, which carried mail between Missouri and California in the early 1860s, went out of business with the completion of telegraph lines to California. In the 20th century, the telegraph was replaced by the telephone. Time and time again, one decade’s innovation is partially replaced or even destroyed by the next round of technological change.
In the modern world, prices change not only as a result of things that happen in one country, but increasingly because of changes that happen in other countries, too. International change affects production patterns, wages, and jobs in the U.S. economy. Sometimes these changes are triggered by something as simple as weather conditions someplace else in the world that affect the production of grain, coffee, sugar, or other crops. Sometimes it reflects political or financial upheavals in Europe, Asia, or other parts of the world. There have been several examples of such events in the U.S. economy in the 1990s. Higher coffee prices occurred after poor harvests of coffee beans in South America, and U.S. banks lost large sums of money following financial and political crises in places such as Indonesia and Russia.
The ability to respond quickly to an increasingly volatile economic and political environment is, in many ways, one of the greatest strengths of the U.S. economic system. But these changes can result in hardships for some people or even some large segments of the economy. For example, importing clothing produced in other nations has benefited U.S. consumers by keeping clothing prices lower. In addition, it has been profitable for the firms that import and sell this clothing. However, it has also reduced the number of jobs available in clothing manufacturing for U.S. workers.
Many people think the most important general issue facing the U.S. economy today is how to balance the benefits of quickly adapting to changing economic conditions against the costs of abandoning the old ways. It is vital for the economy to adapt quickly to changing conditions and to focus on producing goods and services that will meet the most recent demands of the market place. However, when businesses close because their products no longer meet the demands of the market, it is important to make retraining or new jobs available to workers who lost their means of making a living.
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