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The Reallocation Myth
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The Reallocation Myth

Chang-Tai Hsieh and Peter J. Klenow
Fed Kansas City, 2017
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • For Experts

Recommendation

The term “creative destruction” describes the sometimes painful shift of capital, labor and assets to higher levels of dynamism and productivity. This reallocation across an economy augurs stronger long-run growth and increasingly vibrant activity, particularly if new companies displace legacy firms. Some blame sluggish US growth since 2006 on a lack of creative destruction. But economists Chang-Tai Hsieh and Peter J. Klenow disagree. Their technically complex report on the ebb and flow of an economy will interest researchers and analysts.

Take-Aways

  • Economist Joseph Schumpeter’s concept of “creative destruction” remains popular today, but the theory demands greater scrutiny.
  • Research shows that, in the United States, existing businesses that incrementally improve their own products account for most of the innovation in an industry.
  • From 2003 to 2013, new firms accounted for half of job creation but added only 13.3% to economic growth.

About the Authors

Chang-Tai Hsieh is an economics professor at the University of Chicago Booth School of Business. Peter J. Klenow is a professor of economic policy at Stanford University.

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