In thinking about recovery from Credit Crisis2008, Arnold Kling has started staying that we need to think of Economic Activity not in terms of GDP (spending) but rather PSST - "Patterns of Sustainable Specialization and Trade".

Feb14 summary - It is possible that some economic slumps can be traced to un-discovery. However, the more interesting possibility is that slumps can be caused by very rapid technological discovery (he's referring to widespread adoption of the InterNet), with the process of discovering new patterns of specialization and trade lagging behind... It is no longer appropriate to treat the economy as a system of equations with a definite solution. Instead of the Walrasian auctioneer, we have individual business ventures groping for sustainable patterns. Some new ventures will work. Most will fail, as will some existing ventures. There is a tendency for some industries to rise as others fall, but there is no automatic guarantee that the successes and the failures will exactly balance one another. Sometimes, the adjustment can be a difficult one, and the successful new ventures can lag behing the failing old ones. To put it in terms of a single sentence, slumps can occur because discovery takes time. See Technological Revolutions And Financial Capital.

Feb15: he contrasts his thinking with Tyler Cowen's Great Stagnation thinking (which implies permanent Un Employment).

Feb21: In the long run, if more people adopt the paradigm of Patterns of Sustainable Specialization and Trade, they will stop looking at static concepts like sectors and instead look at the dynamics of what I call discovery. I think if we are going to get anywhere with the new paradigm, we will have to come up with new metrics. I think we will have to get a handle on adjustment costs, including the cost of firm formation, the cost of expanding enterprises, and the cost of integrating new labor and capital into an existing enterprise.

Nov'2011: Race Against The Machine by Erik Brynjolfsson and Andrew Mc Afee (B005WTR4ZI) sounds a lot like the Great Stagnation argument.

WebSeitzWiki: z2011-03-29-KlingPsstEconomicActivityRecovery (last edited 2014-03-19 16:33:23 by BillSeitz)

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