A Macro Play in Three Acts
By Arnold Kling
The characters: Bao, Esteban, Leroy, and Marcel
Act One (the boom): Bao and Leroy have opened a restaurant, as have Esteban and Marcel, serving curried baked beans and Pupusas in mushroom-wine sauce, respectively. There is a lot optimism and economic activity.
Act Two (the bust): It turns out that these dishes do not have enduring appeal. All four men are unemployed, and economic activity is down.
Act Three (the recovery): Bao and Marcel have joined forces and opened a successful restaurant serving French Vietnamese cusine. Leroy and Esteban have opened a successful Tex-Mex restaurant.
If you are attached to the standard macroeconomic paradigm of aggregate supply and demand, then this play can serve as an illustration. Nominal GDP is much higher in acts one and three than in act two.
On the other hand, if you are attached to the paradigm of Patterns of Sustainable Specialization and Trade, then this play also can serve as an illustration. The pattern of trade in act one was not sustainable. During act two, there was little economic activity while a Recalculation was taking place. During act three, a sustainable pattern of trade had been found.
My point is that the same sequence of events can be given multiple interpretations. In my view, the most important feature of the play is that the characters work in different configurations in act one and act three. To the extent that is the case, I prefer the PSST interpretation.