Notes from Perry Mehrling
These all come from Understanding Fischer Black, written ten years ago.
From this point of view, economic growth appears as a process of increasing sectoral differentiation and increasing temporal roundaboutness, a process with no apparent end in sight. What we observe as accumulation of capital, physical and human, is just the form that the process takes. The downside of growth by increased specialization is increased vulnerability to technology and taste shocks. “Obsolescence is the dark side of innovation” (1995a, 67).
Mismatch, or “uncertainty about whether we will have what we want in the future, and about whether we will want what we have” (1995a, 45), is also the fundamental source of risk for the economy as a whole. When the match is good, we have a boom. When the match is bad, we have a recession.
By the time we discover that our past expectations were wrong, the investments have already been made, and it takes time for the new investments implied by the new set of expectations to begin producing to meet the new structure of demand. Cyclically persistent unemployment is the result.