3. Here is a thought I had the other day. If American jobs are being outsourced to India, why don't Americans just move to India and take those jobs?
Two obvious answers: American don't want to move (adaptation friction). And Americans don't want to take lower pay (wage friction). The AS-AD model implicitly assumes that wage friction (or price friction, in some more exotic versions) is the relevant margin, so that you can cure unemployment with more AD. The PSST model assumes that adaptation friction is the relevant margin. People need to change cities, and, more importantly, discover new forms of comparative advantage.