L-data and D-data
By Arnold Kling
When we go into a recession, many things become easier to buy and harder to sell. And when we go into a boom, those same things become easier to sell and harder to buy. A recession has lots of buyers’ markets and a boom has lots of sellers’ markets. That’s what I mean by L-data.
Read the whole thing.
If the GDP factory does not cut prices and wages during a recession, then we have excess supplies of goods and labor. But I do not think in terms of a GDP factory. Instead, I think in terms of creative destruction and groping toward equilibrium. In Hayek’s phrase, I think of competition as a discovery procedure. The task is for entrepreneurs to discover ways to exploit comparative advantage. If Rowe wants L-data that measure the liquidity (or lack thereof) in the GDP factory, I want D-data that measure the rate at which entrepreneurs are discovering how to exploit comparative advantage.
For all I know, when business owners respond to a survey by saying that they are very concerned with a need for more sales, they are providing D-Data. They could be telling us that they are having difficulty establishing patterns of sustainable specialization and trade.
From my perspective, we are in a recession (and, yes, I still think of us as in a recession) because we recently learned that many patterns of specialization and trade are not sustainable, and because the process of discovering new patterns is proceeding slowly. I would bet Karl Smith, Dean Baker, and anyone else who wants to take me on that most unemployed workers are not going to get their old jobs back as the economy recovers. Instead, new patterns will emerge. I wish we had D-data that told us more about this process of emergence.