How to evaluate creative destruction: reconstructing Schumpeter's approach

Economic change, while promoting innovation and growth, at the same time generates 'gales of creative destruction'. It is still largely unclear what this concept implies for the task of assessing welfare (and, correspondingly, the need for and the scope of policy making) in a novelty-generating, knowledge-based economy. Is novelty desirable per se? Is a rise of living standards due to innovation always worth the risks involved? Standard welfare economics is inherently incapable of answering these questions. By examining Joseph Schumpeter's explicit and implicit reasoning on welfare and linking his thoughts to recent ideas, within normative economics, on how to redefine 'well-being' when preferences are variable and inconsistent, we argue that in an evolving economy, well-being should not be conceptualised in static preference-satisfaction terms, but rather in partly procedural terms of 'effective preference learning'. Copyright , Oxford University Press.