What A "Guide to Discontinuity/ZMP for Skeptics" Should Look Like

For one, I think you are vastly understating how much established evidence there is for ZMP-like ideas; start with the literature on labor hoarding, and discussions of the sudden switch to countercyclical labor productivity. Measures of the impact of unemployment insurance so far are not coming out very large. No one need deny that AD has a big role.

A deep point: market equilibration of the macroeconomy is SLOW. There are a lot of moving parts, a lot of things to figure out. Lots of employees are ZMP for the first few days or weeks, and then there were the costs of designing a job. It might take quite a while for a new hire to pay off. If rapid technological change and political risk make you uncertain how you'll be doing business in five years' time, the new hire may not be worth it. Also, foolproof jobs tend to be the ones that get automated, while jobs that require judgment, character, initiative etc. are jobs for somebody you know and/or somebody with a relevant track record. Technological employment is occurring all bunched up because the Fed and the government sheltered us from it with low interest rates and deficit spending as long as they could. They're still trying to, but it doesn't work anymore.

Of course equilibration is slow. The New Keynesians have all sorts of hypotheses for why it is slow: efficiency wages, menu costs and monopolistic competition, worker morale, semi-stable sunspots, etc. And their mechanisms imply such and such effects of monetary or fiscal policy.

Kling has search for PSST for the mechanism, briefly, that search for long-term profitability just takes lots of time and no other short-term non-market-clearing equilibrium is 'sustainable'. Fine. Great. Ignore the truly weird general equilibrium dynamics required by this for the moment. So why is expenditure on said search procyclical rather than anticyclical? There's a simple correlation problem here, same as that which bites a lot of RBC theories. Bunched-up technological unemployment would imply anticyclical investment in new technologies. Instead it is procyclical. So...?

Or, as Bryan points out, why would finding new PSST be coincidentally faster in countries with better monetary policy if it is fundamentally a real process?

ASAD: A SAD DEVELOPMENT IN MACROECONOMIC PEDAGOGY
Roger W. Garrison, Auburn University

“The most fundamental case against presenting macroeconomics in an ASAD framework is that the framework itself involves some major (and many minor) misrepresentations and inconsistencies. The least of these problems is the fact that AS is not a supply curve and AD is not a demand curve…. At best, both curves are market equilibrium curves, each deriving from considerations of both supply and demand.

“More damaging to the ASAD framework is the fact that the separate sets of assumptions that underlie these two market equilibrium curves are mutually contradictory. Why, for that matter, are there two market equilibrium curves? The answer to this question is that the two curves reflect two different (and conflicting) views about just how the economy works. This is the internal conflict identified by David Colander in "The Stories We Tell: A Reconsideration of AS/AD Analysis (Journal of Economic Perspectives, Summer 1995). The AD curve is based upon a Keynesian view of supply (Demand creates its own supply); the AS curve is based upon a classical view of supply (Scarcity is a binding constraint). While each of these views has its own merits and application, the representation of the two views as two (somehow interacting) curves on the same set of axes is neither theoretically nor pedagogically sound.”

Paper available as pdf: http://mises.org/pdf/Garrison/asad.pdf

[url added with permission of commenter--Econlib Ed.]

Re #2: AD/AS doesn't have "industries". There is only the GDP factory, and perfectly substitutable labor & capital.

In asking what PSST can tell us that AS/AD can't, Bryan seems to be assuming that AS/AD makes sense. But if AD/AS never made much sense to begin with, AD/AS with bells and whistles is an easy rival to beat.