Arnold Kling  

My PSST op-ed

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in the WSJ European edition.


Unfortunately, the patterns of specialization and trade that had emerged five years ago were not sustainable. Many jobs in home construction, durable-goods manufacturing and distribution, and mortgage finance were dependent on housing markets with ever-rising prices. In the U.S. and the U.K. in particular, the finance industry expanded well beyond its true economic value. Once the property bubbles burst, these jobs were exposed as not viable. Meanwhile, ongoing creative destruction brought about by the Internet and globalization have continued to allow substitution of capital and emerging-market labor for industrialized countries' labor in many sectors. Together, these phenomena have caused widespread dislocation.

It goes on to make the point that government spending does not create sustainable jobs.


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COMMENTS (6 to date)
david writes:

I had the impression that PSST had more to it than "if the government changes its budget composition, the wider economic pattern will change".

Presumably there is some "the change will take time" or "the change will be costly" to it? Or is simply taking the argument to its logical conclusion - of adjustment smoothing in the aggregate - too unpalatable?

Is the implied thesis of "we'll only be able to know what the new pattern might be once enough people have suffered as the old pattern disintegrates" too obviously liquidationist, for one thing, and too obviously contradictory with regards to what the sustainability metaphor suggests about transitions toward stable states?

david writes:

Seriously, otherwise you just have Leijonhufvud's corridor, which I know you know about. That there is a self-correcting "entrepreneurial adjustment" mechanism that can be overwhelmed, and that policy is explicitly said to be able to temporarily force the economy back within the bounds of this mechanism, therefore says what about the effectiveness of this policy with regard to economic correction?

Eric Falkenstein writes:

Very well written!

Seth writes:

david - Did you read Arnold's full piece?

He doesn't imply "we'll only be able to know what the new pattern might be once enough people have suffered as the old pattern disintegrates".

It's more like, "we won't know what the new patterns will be until they are discovered. Anything that impedes that discovery process is not helpful."

JK writes:

Interesting article.

This is my first time coming to this, so maybe someone can point me to somewhere the point has already been discussed:

It seems to me that much of the difficultly is bound up in the 'sustainable'. In the op-ed you contrast 'unsustainable' (=unprofitable) to 'sustainable' (=profitable) activity. Yet you also point out that what constitutes profitable activity is continually changing. Maybe it is just a matter of terminology, but it would seem to me that there is no such thing as 'sustainable' activity.

The contrast is not a binary one between sustainable and unsustainable but rather a quantitive scale of more or less durable. It's not obvious to me that more profitable = more sustainable, either. For example, fixing year 2k computer bugs or catering to the Olympics might be profitable but unsustainable - although admittedly these example are not whole industrial sectors.

david writes:
It's more like, "we won't know what the new patterns will be until they are discovered. Anything that impedes that discovery process is not helpful."

Unfortunately, no. If you discard the Austrian narrative of knowledge discovery for an intuition of local-attractor (i.e., sustainable) states borrowed from the hard sciences, then you also lose the Austrian carelessness with regards to what "discovery process" means.

It means that you lose the Austrian epistemological attack against discussing the properties of currently unknown but abstractly possible attractors. It also means that you should take seriously the notion of bad dynamic equilibria. And it also means that the conclusion that Kling prints loud and clear in the headline of the piece is fully unwarranted.

Kling was willing to acknowledge as much when Cowen publicized what was the really damned obvious conclusion that Noahpinion pointed out, but he chose to hide behind "okay, okay, government actually can create sustainable jobs, my bad, but it won't due to public-choice and knowledge problems". Austrian characteristics which we were, you know, supposed to have disposed of in formulating a less problematic alternative to Austrian calculation. He wants to have his ABCT cake and eat it.

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