Toward a New Macroeconomics, Part One

This is a concise summary of what I currently believe.

Low Creation High Creation
Low Destruction Corporatist Stagnation Schumpeterian Boom
High Destruction Minsky Recession Rising Dynamism

There is high creation when new businesses are launching and growing at a high rate. There is high destruction when incumbent businesses are disappearing at a high rate.

When the incumbents use government power to hang on, we have corporatist stagnation. That would be my diagnosis for Europe starting in the 1980s and Japan starting in the 1990s. The U.S. is at risk of falling into that quadrant.

Schumpeter describes a boom in which new businesses are emerging but incumbent businesses have not yet gotten the memo. You get Amazon growing while legacy bookstores remain.

A Minsky recession describes what we have seen in the U.S. in the last five years. Minsky said that when you have a financial crisis, businesses try to minimize outside funding and live off profits. Mark Perry shows what happens as a result.

The fact that the US economy is producing 5.6% more output now than in 2007 with 2 million fewer workers would explain why corporate profits are at record levels and more than 40% above the pre-recession peak (not adjusted for inflation).

Rising dynamism describes the U.S. in the 19th century, Japan in the 1960s and 1970s, and China more recently. Old patterns of economic activity are rapidly giving way to new ones.

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3 Responses to Toward a New Macroeconomics, Part One

  1. Lee Kelly says:

    Your matrix could also describe scientific progress.

  2. Joe Green says:

    Will flush this out in your book?

  3. andrew' says:

    Corps are “extracting” profit margins. It won’t last to this extent.

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