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Doctor Hammer's avatar

Good essay! I am glad to see you taking the time to really work through your idea of what is going on, and where things will go, and appreciate the effort!

Just to keep the conversation up, I agree with your predictions, except I think that construction employment won't go down much, if at all. Skilled, even moderately, blue collar/trades workers are still hard to come by, and I expect that while there might be movement between jobs for many of the construction trades the total jobs will not decline much if at all. I wouldn't be surprised by a slight increase, either, but in general I think that very small oscillations around 0 are more likely than a real loss anything like the tech sector.

One point of disagreement or criticism, you write:

"It is the small net number of job gains or losses that determines the change in real GDP. A huge amount of bottom-up churning (4.5 million new jobs) lies underneath the GDP gain, which comes from the net new jobs (0.2 million)."

That isn't exactly true, and indeed your PSST theory suggests it shouldn't be. The NET change could be 0 while still having a positive (or negative) effect on GDP, as workers leave jobs they are less productive in towards jobs where they are more productive. The pattern changing is what matters, not the total number so much. One could imagine a badly run construction company failing, causing a loss of 100 jobs, then immediately another construction firm hiring all those workers (and buying all the physical capital) and putting them right back to work, creating 100 new jobs. Net 0 job creation, but the organizational capital of the surviving firm being better allows for higher productivity for the same workers, raising GDP.

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stu's avatar

I think asking whether the Fed is in control of GDP is a bit of false strawman. The Fed's job, difficult as it may be, is to flatten out the business cycle with the goal of maximizing long term growth, whether the peaks and valleys be due to labor hoarding, changes in spending and/or saving, price shocks, etc. (Minimizing unemployment is also a Fed goal.) The great difficulty is getting adequate quality information in a timely manner and making the right decisions. One could argue the Fed has gotten better at this but surely there is room for further improvement.

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