Gene Epstein explains for Barron’s readers why the American economy could use more “creative destruction.”

How is the U.S. economy doing? It depends on what you’re comparing it to.

Compared to the outlook for imminent recession, the economy is doing great. Job gains persist at more than 200,000 a month. New unemployment insurance claims averaged 263,000 per week in March and 261,000 in February, the two lowest monthly readings on initial claims in 43 years.

While the overall economy usually expands even when manufacturing is contracting, factory output has also shifted into expansion mode, as indicated by the Institute for Supply Management’s March index of manufacturing, recently released. And as reported last week, the ISM’s index of the much larger services sector (technically “nonmanufacturing”) signaled stepped-up expansion, rising to 54.5 in March from 53.4 the month before.

Compared with previous expansions, however, the economy gets low marks.

Growth of 3% still seems likely this year, even though the risks to that forecast have lately increased. But if 3% growth is achieved, this will still be the worst expansion on record. …

… The dismal performance, in my view, is due to the decline in the Fraser Institute’s economic freedom index to the level of 1970. …

… Notice that over the past few years, the number of jobs destroyed has run at about 10 million a year, a figure that dwarfs estimates for jobs lost to foreign competition. The real creative destruction in the job market results from competition within the immense U.S. economy.

There have been net gains in employment because jobs created have been averaging more than 12 million. As the chart also shows, even during the worst of the Great Recession, jobs created ran 10 million, albeit with jobs destroyed running at 13 million to 16 million.

Now notice that, in the 1990s, the gap between jobs created and destroyed was about the same as in the recent period, but the numbers in each case were noticeably higher. This slowdown in creative destruction may be one more reason why growth over the recent period has been subpar.