A new paper by David Levine.

capitalist economies by virtue of being efficient employ longer and more specialized production chains than more poorly organized economies. This raises output, welfare and utility, but it also leads to more “crises” than shorter less efficient production chains in the sense that output is more volatile. One might summarize by saying: capitalist economies are more subject to crises than less efficient economies – and this is a good thing.

…The model of chains also helps understand the consequences of technological change. For example, better communications – the internet – can potentially increase r .This will lead to greater specialization, longer chains, more output, and higher welfare. But it will also result in higher unemployment and greater volatility.

One can see a “production chains” story in the paper by Jonathan Eaton, et al (thanks to Tyler Cowen for the pointer).

The decline in total manufacturing demand (durables and non-durables) accounted for more than 80 percent of the global decline in trade/GDP.

I think that these sorts of papers are much more valuable at the margin than yet another paper that uses rational expectations or dynamic stochastic general equilibrium or price friction. We need more work on theory X and less work on theory Y.