2.1 Home production increases in a recession. People grow their own veggies, cook their own meals, fix their own cars, and go back to school. Because investment in human capital is a form of investment that requires mostly one’s own time, on top of inputs bought for money. Home production of investment goods rises, even as all other forms of investment fall.
2.2 If trade were harder in a recession, we would expect to see trade in all goods falling, and not just trade in newly-produced goods. And, as far as I can tell, that is what we do see. It gets harder to sell old houses, as well as newly-produced houses.
2.3 Barter increases in a recession, as far as I can tell. Barter is usually very difficult, but some barter exchanges are more difficult than others. If recessions were caused by something that made monetary exchange more difficult than normal, we would expect to see abnormally high levels of barter in a recession. I think we do.
2.4 Some goods are easy to sell for money even in a recession. Which goods are those? It is those that are traded in organised central markets, where problems due to asymmetric information are small, and where prices are very flexible. It is precisely those goods that are more like money, where if all goods were like that we wouldn’t need money as much to help economic coordination. It is those goods that are traded in markets that approximate the market of the Walrasian auctioneer. If all goods were like that, and if all markets were like that, we wouldn’t observe recessions. And we wouldn’t need money.
But we don’t see increased use of foreign currency in a recession. We don’t see increased use of buying on credit–we see the opposite. And as for point 2.3, as far as I can tell, the use of barter in the 2008-present episode has been minimal.
Later, he writes,
Lots of things can cause coordination failures. Not all coordination failures are monetary coordination failures. There are many coordination failures that monetary policy cannot cure.
I don’t think that the last six years represents an example of the latter.
But why not? Think about the difficulty of entrepreneurs to go into the very areas (services) which society seeks to expand in the present – particularly healthcare. The same difficulty which exists for would be entrepreneurs, also exists for anyone who would seek to barter for healthcare because of the artificial limitations on entry. More than anything else, it is the artificial limitations on knowledge use that has become the problem, because people were expected to rely on knowledge use – not land – for the wealth representation of the present. When they are not able to do so, asset formation in turn becomes restricted, which is represented by the monetary tightness which exists around the world. Only when the restrictions are limited on knowledge use, can society grow, and central bankers will see the opportunity. In the meantime they are content to hide the truth from the public – that monetary policy is closely linked to the aggregate potential of our time use.
You write: “I don’t think that the last six years represents an example of the latter.”
Not an example of “many coordination failures that monetary policy cannot cure”? I think I’m missing something because I thought your PSST view would have the last six years showing coordination failure that monetary policy cannot cure as entrepreneurs search for PSST.
The key difference between money and some other very tradeable entity is “memory” and above all credit. That is, when I borrow money to buy something new, I am promising the lender “it will go well and I’ll pay you back later”, and yes that intermediates between me and the seller, but at the level of the whole economy the effect is the same.
Thus recessions seem to me to be about a pull back in the effective use of credit. Whether that’s because a large volume of people get scared and stop borrowing, or because a large volume of people get scared and stop lending, the net effect is that “new spending power based on confidence in the future” falls or collapses.
Most of the effects that Rowe speaks of seem to me to be results of that collapse.
As for PSST – any kind of activity with a non-0 length return term requires some level of confidence looking forward. Patterns will be very heavily influenced by two very old ideas – fear and greed. People often disparage greed, but enlightened greed can be a force for good. It seems to me fear almost never is.