Thursday, January 01, 2009

A New Year churn 

I was going to leave New Year's Day alone blog-wise -- I second Janet's wishes -- but I was provoked to thinking by something Gary Gross wrote this morning on bailing out newspapers.
I remember the wailing and gnashing of teeth during Reagan�s time. People bemoaned the fact that IBM, Sears and Montgomery Ward were going through difficult times, relatively speaking. I say relatively because IBM still held a market share north of 75 percent.

While politicians were whining about IBM�s, Sears� and Montgomery Ward�s difficulties, people weren�t noticing how Walmart was replacing Sears� and Montgomery Ward�s catalog operations. They weren�t noticing that this little company in Redmond, Washington was helping eliminate most of IBM�s market share with a product called Windows.

It�s just a matter of time before the newspaper essentially dies.
I italicized newspaper in that last sentence because Gary has hit a key point. The newspaper isn't journalism. It's a vehicle that delivers journalism. IBM isn't computing; it was a machine in which computing happened. I still marvel at what my iPod does, what my cellphone does. What they do we called computing thirty years ago.

I've written several times on this blog about the churn, the life cycle of a business firm and the process of new firms meeting consumer demand. The demand for what AT&T sold in 1959 still exists -- indeed, it's expanded in ways Ma Bell never imagined. But other firms moved more quickly to meet the demand.

I visited my parents over the weekend. They get their news through the TV, even though there's a newspaper in the house and a computer with a wireless connection. And they watch broadcast news from a local channel that gives local news. That's the same method they got the news fifty years ago (my dad worked nights until I was fourteen.) But they do get email from others who send them news. All of that is produced by people who write news -- which we call journalism. The product is there. The form in which it received has evolved, emerged in a digital age into something we didn't expect and for which we could not plan. Newspapers try to adjust to that emerging reality. Some will succeed; others won't. There's nothing to lament about it any more than there is any reason for a consumer to lament the loss of Bethlehem Steel. We still have steel products. We will still have news.

The parallels to the auto industry are obvious. The ones to banking aren't, but perhaps they should be. As economists rethink banking, perhaps one thing to consider is how the demand for credit has evolved, and how new instruments and new institutions emerge to meet that demand. In any crisis where Schumpeter's winds of creative destruction are unleashed, the demand that remains will be filled by new firms. Banking itself can change (just look at how it has changed in the last 75 years.) My New Year wish -- now that I got Schumpter into a local newspaper -- is that we develop a greater understanding in what Julian Simon called the ultimate resource.
...human groups spontaneously evolve patterns of behavior, as well as patterns of training people for that behavior, which tend on balance to lead people to create rather than destroy. Humans are, on net balance, builders rather than destroyers. The evidence is clear: the civilization which our ancestors have bequeathed to us contains more created works than the civilization they were bequeathed.

In short, humankind has evolved into creators and problem-solvers. Our constructive behavior has counted for more than our using-up and destructive behavior, as seen in our increasing length of life and richness of consumption.
Blessings on your New Year's Day; may you prosper.