Another Recalculation Theorist

Dot.com employees are shed, move into financial services during the housing boom, but now where have they gone? They are reasonably well educated, so I they are probably resourceful as a group, but maybe they are at least a portion of the currently unemployed. If so, they should think carefully about Obama in 2012 since the recalculation is being slowed by Government meddling with most of the economy.

I've been debating this with Scott Sumner at his blog.

Sumner insists the only "testable" causal evidence is Keynesian aggregate relations easily downloaded into any sophomores computer -- and "tested" with pre loaded software.

I've suggested that this is the equivalent of a drunk looking for his keys under a lamp post -- and that cycle explanation without strucutural micro causal mechanisms is like trying to explain the origin of species and adaptation with no differential causal micromrelations -- and using only Platonic macro enties, i.e. the kind of aggregate biological categories that Ernst Mayr tells us halted advance in biology for two centuries.

OK, but surely this is weak evidence indeed. Structural economic shifts are always taking place, and, as Krugman has emphasized, they don't usually produce recessions, much less panics. You need a far more precise definition of recalculation in order to make it into a testable hypothesis and an even tougher standard is necessary for it to be useful.

Normal structural changes don't produce recessions because they don't happen all at the same time. When the government inflates the currency, that provides the coordination for everyone to march across the bridge in lockstep. Also, the structural change is accompanied by tighter credit because many loans went bad all at the same time, again because of government meddling.

You can always trust Krugman's economics ... to be wrong.

Russ Nelson's answer to capitalistimperialistpig sounds convincing to me.