Peter Gallagher

…tech­no­log­i­cal inge­nu­ity is the key to the pros­per­ity and suc­cess of the cap­i­tal­ist econ­omy. New inno­va­tions and their imple­men­ta­tion and mar­ket­ing will play a cen­tral role in renewed eco­nomic growth in the after­math of the crisis.

But…

A large stim­u­lus plan that includes bailouts for banks, the finan­cial sec­tor at large, auto man­u­fac­tur­ers and oth­ers will undoubt­edly influ­ence inno­va­tion and real­lo­ca­tion. This is no rea­son for not endors­ing the stim­u­lus plan, but it is impor­tant to con­sider its full set of impli­ca­tions. Real­lo­ca­tion will clearly suf­fer as a result of many aspects of the cur­rent stim­u­lus plan. Mar­ket sig­nals sug­gest that labour and cap­i­tal should be real­lo­cated away from the Detroit Big Three and highly skilled labour should be real­lo­cated away from the finan­cial indus­try towards more inno­v­a­tive sectors .

In other words, for “cre­ative destruc­tion” to work—to secure the real­lo­ca­tion toward inno­v­a­tive activ­ity that is the strength of entre­pre­neur­ial capitalism—governments have the polit­i­cal courage to allow destruc­tion to take place.

One of the inter­est­ing obser­va­tions that Fer­gu­son makes is that pan­icky reac­tions, like those of the Rudd gov­ern­ment sug­gest they have for­got­ten the volatile busi­ness cycles and eco­nomic crashes of the 1960s, 1970s and 1980s that gave birth to, among other things, productivity-driving inno­va­tions like the IT rev­o­lu­tion. Cer­tainly, the Prime Min­is­ter seem to rely heav­ily on the advice of twenty-something staff, too young to have seen this before. But the Sec­re­tary of the Trea­sury and the Gov­er­nor of the Reserve Bank? They’re no spring chick­ens. What respon­si­bil­ity do they take for advis­ing the gov­ern­ment on poli­cies that have caused a run on invest­ment funds, or have drained the fis­cal sur­plus with­out result, or threaten to sub­si­dize incau­tious (or incom­pe­tent) prop­erty investors? (There’s a story in the SMH that the Reserve Bank is opposed to this rot­ten idea).