Creative Destruction: Trump and Carrier: How a Modern Economy Is Like a Parking Garage
In the two hours that President-elect Donald J. Trump spent flying to Indiana on Thursday to boast of his accomplishment in saving 1,000 jobs, about 6,000 private-sector jobs in the United States were probably destroyed.
It’s a surprising statistic — one that speaks to the constant state of change in the labor market. My calculation is based on government data that shows that every three months roughly 6.7 million private-sector jobs are destroyed, which in an expanding labor market is offset by the creation of nearly 7.2 million jobs.
Over a full presidential term, more than 100 million jobs will be destroyed. Mr. Trump can’t expect to stanch much of that flow.
Of course, not all jobs that go away are gone forever: Public beaches need lifeguards every summer, and Macy’s hires elves around Christmastime. Not that this is necessarily much comfort to a jobless elf in January.
One lesson here is that Mr. Trump’s deal-cutting approach is wholly inadequate — and impractical — in view of the size of the American labor market. While the workers at Carrier benefited from Mr. Trump’s attention, the problem is that this approach doesn’t scale.
The number of companies that are in a situation like Carrier’s is so large that no president could hope to sift through and save any reasonable percentage of them. The number of companies that might pretend to be in distress in the hopes of getting a handout to remain is even larger.
And distinguishing between the two groups is nearly impossible.
But the Carrier case also illustrates a larger point about how the economy works. In Mr. Trump’s telling, the economy is a fixed set of jobs getting shifted around a global chess board. Mexico’s loss is our gain and vice versa.
But you should think of the economy as being in a state of constant churn. The economist Joseph Schumpeter used the now-famous phrase “creative destruction” to describe this process by which new firms push out the old. The result can be cruel, but an extraordinarily fluid labor market, many economists argue, is the secret of American dynamism.
Think of the American economy as a 10-level parking structure or garage, where each car represents an active firm, and the seats in the car are the jobs available. A well-managed business like this is usually pretty full. But it’s also in a state of constant flux, with new cars entering as some people arrive, and previously parked cars leaving as others head home. Every hour, around a tenth of the cars leave the lot, just as a tenth of existing business establishments close each year and leave the labor market.
The deal at Carrier is akin to Mr. Trump’s intercepting a driver on his way to his car, and trying to persuade him to stay parked a little longer — perhaps by pointing to the enticing Christmas specials at the nearby stores.
It’s an approach that no parking business bothers trying.
Rather, the long-term strategy of such businesses is to try to attract a larger clientele by offering a more convenient experience. They understand that there are many more potential customers outside than inside the garage. In this analogy, the government’s best hope for creating jobs is to create a positive business climate.
Instead, Mr. Trump is focusing his resources on existing firms — the cars already parked there — rather than on the millions of potential entrepreneurs who might open the next generation of businesses.
Mr. Trump has also suggested that in the future he might use an alternative strategy — using sticks rather than carrots to keep jobs parked within the United States. But this also seems problematic — after all, would you choose to park in a location where parking attendants harass you when it’s time to leave?
The economics of parking contain a big lesson for the Trump administration: A parking garage stays full, and an economy stays healthy, only if it’s constantly refreshed.
Continue reading the main story