Arnold Kling  

L-data and D-data

PRINT
Why I Am Not a Left-Libertaria... Two Links...

Nick Rowe writes,


When we go into a recession, many things become easier to buy and harder to sell. And when we go into a boom, those same things become easier to sell and harder to buy. A recession has lots of buyers' markets and a boom has lots of sellers' markets. That's what I mean by L-data.

Read the whole thing.

If the GDP factory does not cut prices and wages during a recession, then we have excess supplies of goods and labor. But I do not think in terms of a GDP factory. Instead, I think in terms of creative destruction and groping toward equilibrium. In Hayek's phrase, I think of competition as a discovery procedure. The task is for entrepreneurs to discover ways to exploit comparative advantage. If Rowe wants L-data that measure the liquidity (or lack thereof) in the GDP factory, I want D-data that measure the rate at which entrepreneurs are discovering how to exploit comparative advantage.

For all I know, when business owners respond to a survey by saying that they are very concerned with a need for more sales, they are providing D-Data. They could be telling us that they are having difficulty establishing patterns of sustainable specialization and trade.

From my perspective, we are in a recession (and, yes, I still think of us as in a recession) because we recently learned that many patterns of specialization and trade are not sustainable, and because the process of discovering new patterns is proceeding slowly. I would bet Karl Smith, Dean Baker, and anyone else who wants to take me on that most unemployed workers are not going to get their old jobs back as the economy recovers. Instead, new patterns will emerge. I wish we had D-data that told us more about this process of emergence.


Comments and Sharing


CATEGORIES: Macroeconomics



COMMENTS (9 to date)
Daniel Kuehn writes:

Is there a large contingency that says workers will get their old jobs back or that restructuring doesn't go on during downturns?

I think your primary departure from the mainstream is in citing these restructuring issues as causal or central to the story, not in your identification that restructuring and churning goes on.

Dean Baker writes:

Arnold,

Do most unemployed workers get their old jobs back in other recessions? While some are on temporary layoff (and even some of these will never get their jobs back), most unemployed workers are not on a layoff, but have rather been dismissed.

We know this recession is longer and deeper than past downturns, but the fact that most unemployed workers will not return to their prior jobs does not distinguish it from other recessions.

david writes:

If you buy the "organizational capital" idea, once workers have been dismissed, the capital underlying the previous pattern regime is rapidly destroyed. So even if the problem is aggregate demand, such organizational capital must be rebuilt slowly. Firms that anticipate being able to do so will not switch to methods requiring less of such organizational capital, so in the short run we have unemployment nonetheless.

Besides which, most liquidity models would imply that most workers don't get their old jobs back anyway; since the marginal employees are dismissed first, during a recovery there's no reason to hire them back in particular. Firms may as well fight for other, possibly better, employees. So even if panel data suggests that most workers don't get their jobs back, it disproves nothing about so-called GDP factory models.

Thomas DeMeo writes:

The problems aren't in discovering new patterns, but in transitioning out of the old ones.

Bob writes:

RE the quote, does operationalizing "buyers" and "sellers" markets this way make any sense?

Isn't a "buyers market" characterized by lots of offers, few bids, and low volume? Doesn't that correspond to an overpriced market? Maybe not so good for buyers after all.

Similarly, a "sellers market" has lots of bids and high volume, but doesn't that just mean that prices are too low?

I realize that when there are booms/busts this gets more complicated, but still...

Rebecca Burlingame writes:

I agree that just because the recession is supposedly over, a lot of wishful thinking and burying heads in the sand is now going on. For one thing, rural areas were already in recession before it even hit the media. And from the WSJ, July 24, 2006: "In the years between 2002 and 2006, the total number of corporate office positions...declined 21%".

Undoubtedly, some economists are tired of thinking about it already. But Nick Rowe is among those who is not. Karl Smith has me banging my head against the wall right now, after the "Rome is burning" post and suddently a few tweaks with the old tools and everything is supposed to be okay again.

Even though he sees solutions a bit differently than I do, Mark Thoma gets it. In the recent suggestions about teaching economics differently he acknowledged that macroeconomics still needs a lot of new thought processes.

Rebecca Burlingame writes:

I agree that just because the recession is supposedly over, a lot of wishful thinking and burying heads in the sand is now going on. For one thing, rural areas were already in recession before it even hit the media. And from the WSJ, July 24, 2006: "In the years between 2002 and 2006, the total number of corporate office positions...declined 21%".

Undoubtedly, some economists are tired of thinking about it already. But Nick Rowe is among those who is not. Karl Smith has me banging my head against the wall right now, after the "Rome is burning" post and suddently a few tweaks with the old tools and everything is supposed to be okay again.

Even though he sees solutions a bit differently than I do, Mark Thoma gets it. In the recent suggestions about teaching economics differently he acknowledged that macroeconomics still needs a lot of new thought processes.

Tariq Scherer writes:

Undoubtedly, entrepreneurs are one of the hardest factors to measure in the market: whether boom or bust, their presence and activities appear mostly in the anecdotal or as press releases.

I do not dispute that the media and market surveys do not highlight success once they appear but I think you are referring, with your D data, to something more hidden in the current economic spectrum: eg entrepreneurs that are currently in training or that are starting a new idea. The problem with the two examples cited is that they won't be advertised or reported by ongoing media/market reviews given that no positive cashflow is potentially there yet to assist their discovery.

I would hint at other lead-indicators as better highlighters of this Discovery process: increased training numbers (higher post-graduate/college enrolments for senior employees), increased incorporation rates, patent filing numbers, and potentially (more annoying for the families helping them) increased demographic moves back to family households: ie the old innovator in the garage move...

Tariq Scherer
http://www.24-something.com/

Mr. E writes:

Kling,

You make too many strawman arguments and statements. Either that, or you cannot clearly state what your intellectual foils believe and think.

I read your posts frequently, and you are clearly way smart and have lots of good stuff to say. But this:

"I would bet Karl Smith, Dean Baker, and anyone else who wants to take me on that most unemployed workers are not going to get their old jobs back as the economy recovers."

makes you sound really stupid to someone who thinks like Dean Baker - or even someone who can clearly state what Dean Baker thinks.

Mr. Baker probably sighed and wrote his response carefully. I get the impression that Dean spends 30-50% of his day just mopping up stupid comments about left leaning economists.

Comments for this entry have been closed
Return to top