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  • The Economic Problem: A Recalculation View

Economy

25 Jul 2010

The Economic Problem: A Recalculation View

  • By Bill Conerly
  • In Economy

Warning: this post is more about theoretical economics than practical business implications that I usually focus on here.

Most views of the current economic problem (the recession and subsequent laggard recovery) are based on a modern Keynesian model, a good bit more sophisticated than the textbook models you may have seen 30 years ago.  A few of us are relying more on a monetarist model.  Some folks from the Austrian tradition of economics are focusing on what they call "The Recalculation Story."  Arnold Kling summarizes the Recalculation Story in 16 short points. 

The key element is to think of a very diverse, complex economy, rather than an economy that can be explained in just a few equations.  (A Keynesian model might have one equation for total consumer spending, for example, whereas the Austrians think of iPhones as distinct from Droids as distinct from Blackberries, etc.).

This diverse, complex economy requires that people with very specific skills must be matched by employers with very specific needs.  When the underlying structure of the economy changes quickly (construction falls to pieces and won't recover soon), then we have a great mismatching problem that is not solved by traditional stimulus programs.

I think that this viewpoint has validity, but can be overdone.  I have a comment on that post, currently awaiting moderation.

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