In Pursuit of Empirical Macroeconomics
By Arnold Kling
The following should not be construed as advice to graduate students. Let someone else try it first.
1. Forget the national income and product accounts. Pay no attention to the arbitrary classification of output as C,I,G, and NX.
2. Instead, look at the data set that Stangler and Kedrosky used on business dynamics along with the JOLTS (job openings and labor turnover survey) data. Try to locate the changes in the economy in the growth and decline of clusters of businesses.
3. For example, compare patterns of small business creation and destruction in a city that has grown over the past thirty years (such as Phoenix) with a city that has declined (such as Detroit). Does secular growth show up as a high rate of firm formation, a high rate of firm growth, a low rate of firm death, or some combination? How does secular decline show up?
4. Can you see emergence and contraction of specific industries? Does the personal computer industry in the early 1980’s show up in terms of an unusual amount of firms started in certain clusters, unusual growth for a few firms, or an unusually low rate of death for firms? Can you find clusters of firms associated with the boom and bust in dotcoms in the late 1990’s?
5. How do periods of overall employment growth differ from periods of employment contraction?
As a side note, I fear that in talking about the labor matching problem, I have made it sound as if Recalculation is nothing but a labor-matching problem. It is more fundamentally a business-creation problem. A pure labor-matching problem presumes that the firms already exist, and the problem is to match workers with firms. The full Recalculation problem is to create firms that profitably employ workers.
The firms generate patterns of specialization and trade. Profitability is what makes those patterns sustainable.
Suppose that today, right now, you had to figure out a small profitable business that would generate enough income to support your household. Think about this seriously. Come up with a product or service that you could sell, figure out a way to keep costs low enough to make a profit, and make a realistic plan for overcoming competition. That is your local recalculation problem. If you can solve it, then, yes, this ultimately will help match labor skills to the work that needs doing. But that is only part of it.