Discontinuity, Revisited

Bryan's comment works fine if you just multiply "5, 10, or 20%" by some factor L representing the intrinsic leverage, or profitability net of cost, or something along those lines, of the business in question.

Of course, if L>>1, there starts to be a problem...

I think you are hitting onto something here - but the sensible reading of the economy probably needs to invoke both PSST and some model of insufficient demand/NGDP etc., possibly both closely connected. While boosting the NGDP in very big way could temporary avoid the PSST problem, it would not probably last. However, the stickiness in prices/wages together wih decrease in demand due to PSST difficulties leads to job losses unrelated to PSST.

I don't see how this is responsive to Bryan's point.

It might help communication if you two would swear off using terms like "nominal rigidities". Once they become unclear, get specific. Such terms can be so broad that they hide points of disagreement (and agreement).

Good update at the end. I don't think it makes sense to talk about hiring someone back to their previous job at a lower wage, if it turns out their work as actively value-destructive. Any re-hiring would be to have them do something else, hopefully.

I'm pretty sure there is high unemployment in a lot of other industries besides housing.

I would bet that if it weren't for UI a lot of folks would have picked up the dish and started washing for the 20 cents as long as they were still called underwriters.