Europe Needs Creative Destruction

Adam Davidson, in the article The Crisis You Don't Know (link here), shows that the United States' per capital GDP is in much higher than Europe's. I was surprised to find this article in the New York Times Magazine (January 8, 2012), since the paper prefers reporting about the evils of income inequality and Europe has less of that. Kudos to the Times for printing Davidson's piece. It shows that in the long run, economic growth through free markets works better than socialism in promoting the most good for the most people.

According to investopedia, creative destruction is

A term coined by Joseph Schumpeter in his work entitled "Capitalism, Socialism and Democracy" (1942) to denote a "process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one."

America is the land of creative destruction, willing to let the withering die to allow capital and labor to be available for new and more profitable and efficient enterprises..

Davidson argues that Europe is unable to compete on global stage. Its economies lack the flexibility to fire workers when their industries are no longer viable. Thus those workers and the capital maintaining them are not available to move on. Instead, Europe is left with a "permanently unemployed underclass" and inability to stay competitive. The adoption of the euro ossifies the economy of the Continent even further, since the poorer countries can't devalue their currency.

Davidson concludes that Europe is headed for a two-tiered society, the older enjoying generous benefits and the younger stuck with low-wage, short-term work in stagnant industries.