James DeLong invited me to connect the two during the Q&A period here. What I would say is this:
PSST says that in a complex economy, employment fluctuates as unsustainable patterns of trade fall apart and new sustainable patterns get created. In that context, government spending creates new patterns that are unsustainable, such as those in now-failed “green energy” firms that received loan guarantees. The patterns that government creates tend to be unsustainable because of a knowledge-power discrepancy. Government has the power to command resources, but it does not have the knowledge that the market system provides about how to use resources.
So that is the sense in which one might relate the two.
I think the connection between Gilder and PSST could be pushed further. It seems to me that Gilder is emphasizing the importance of an economics that focuses on the efforts of entrepreneurs to find and fund sustainable patterns, a striving that must be a core of PSST.
Your point about governments it true, but not gloomy enough. The first reaction of governments is to deny that old patterns have become unsustainable. Then they throw money at the old pattern to shore it up. (One theory of current Fed policy is that it is focused completely on the housing market because it regards housing as the swing factor in GDP growth or decline.) Then they fund new patterns based on crony capitalism, and at the same time suppress information that might lead to better patterns (e.g., outlawing genetic testing; suppressing Intrade).
Arnold – I think I understand the premise of the PSST line of thought. Here’s a question that arises:
To what extent do various forms of inertia constrain individual and organizational responses to changes in the sustainable pattern?
[An obvious example is that if being an oil field engineer turns into a highly compensated position likely to remain so for some time, what things keep a person from turning themselves into an oil field engineer in order to exploit this new pattern?]
There really isn’t anything unique to government about this though. Those same companies were market creations, and investors also made ex post unsustainable investments, and even more investments after bad. Government even used the market when not doubling down. Now if you really want to consider this, you also have to consider the government’s investment as reducing entrepreneurial risk. In this case unsuccessfully, but also have to consider those that didn’t fail. Of course the government through the tax system is already a silent party to these and how much more it needs to be involved is questionable, as well as the way it is involved.
Market Monetarist Nick Rowe on PSST:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2013/12/i-do-not-understand-recovery-from-recessions.html#more
I agree with Lord. Government investment, like private investment, can produce sustainable investments. It’s what happens when they produce unsustainable investments that is the key difference.