BVI News

COMMENTARY: Creative destruction and Irma

By Dickson Igwe, Contributor

The following story highlights the centrality of economics in disaster recovery, post-Hurricane Irma, for the Virgin Islands.

Hurricanes Irma and Maria, add major floods, devastated the Virgin Islands in September 2017.

The country is under threat of a long economic recession owing to the September disasters. The correct and appropriate application of economics — scarce resource management — holds the answers to a short recession and full recovery.

Now, austerity lovers believe in the omnipotence of the free trade model within the context of the economic cycle.

The economic cycle as defined in preceding articles in the series of economics stories on disaster economies is the journey a country takes over the years, from economic contraction to economic expansion, and then back to contraction. All free democracies go through the economic cycle odyssey.

Consequently, the Jack Austere – austerity lover’s approach to a recessionary economy, such as the Virgin Islands is experiencing post-Irma, is that it is best that the economy be allowed to contract without government interference, and even go bust: lance the boil so to speak. Leave things alone.

The correct economic term is laissez-faire.

For the Austere Believer, nothing is wrong with a recession, even a depression, which is worse than a recession. A recession should last no longer than 12-24 months: a depression can go on for a decade: ten years. In fact, for Mr Austere, recession is necessary to separate the men from the boys: the wheat from the chaff.

Jack Austere’s approach to the economic cycle is this: let the economy contract and go bust. That is a great thing. An economy that is allowed to contract indefinitely, allows for much healthier green shoots to appear, eventually.

Creative destruction in a recession is good for the soil. Creative destruction is a powerful economic fertilizer. Destruction may be painful, but it generates a stronger economic recovery. The caveat: Austerity does not give a time span for the creative destruction process.

But, at some point in the economic cycle — after great suffering — the creative destruction process will begin to pay dividends. The process will push out the green shoots of recovery, even if the cycle lasts a decade.

Painful birth

Economic growth will eventually appear. It will be a painful birth, but the baby will be worth the pain and trauma. The new post-recession businesses will be leaner and fitter.

Yes, Jack the austerity lover states: “Let the Virgin Island’s economy implode. That will be a good thing. An economy that implodes gets rid of the excess fat. A new and better economy will rise from the old sick economy.’’

Jack Austere’s approach to the economic cycle is that the VI economy be allowed to contract ad infinitum.

Eventually, recovery will materialize on its own. The forces of gravity will deliver economic recovery, with minimum human effort.

The new economy will be leaner and fitter. Jack does not really care for the thousands of unemployed; the businesses that go to the wall.

He has no thought for the hundreds who lose their homes and cars in the repossession process. The thousands plunged into despair by recession; even depression.

Jack Austere could care less for the children who will go hungry, and lose belief in Santa Clause and a world of wonder.

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1 Comment

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  1. Economics says:

    Having studied Joseph Schumpeter’s “Process of Creative Destruction” in graduate school I wish to clarify that he is referring to “innovation” that leads to the demise of previous processes/technologies. Amazon.com revolutionized online shopping which has been destructive to retail outlet stores as an example.

    Austerity simply refers to trying to get your spending and budget under control. It does not infer that people simple “don’t care” as this article seems to suggest.

    Austerity is an ugly BVI reality and the process of creative destruction has in fact already begun. The Government is “privatizing” the fishing complex and considering other departments as well. Further cuts and new processes will be coming out of economic necessity, not the desire to let people starve have kids lose their belief in Santa. I know Igwe loves to push Government Stimulus as the magic key, but the how you pay for such stimulus has yet to be discussed – perhaps next article Dickson!

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