A reader asks if John Hussman is stealing the PSST story.
Emphatically, recessions are primarily points where the mix of goods and services demanded by the economy becomes misaligned with the mix of goods and services being produced. As consumer preferences shift, technology introduces new products that dominate old ones, or market signals are distorted by policy, the effects always take time to be observed and fully appreciated by all economic participants. Mismatches between demand and production build in the interim, and at the extreme, new industries can entirely replace the need for old ones. Recessions represent the adjustment to those mismatches. Push reasonable adjustments off with policy distortions (like easy credit) for too long, and the underlying mismatches become larger and ultimately more damaging.
Looking over the entire piece, I would say that the Hussman is 90 percent generic Austrian and maybe 10 percent PSST. I find Hussman worth reading when people point me to his commentaries, but I do not go all in on his or any other market/macro analyst’s viewpoint.
Generic Austrian and PSST are essentially the same thing. Austrians emphasize the monetary and financial distorsions that bring about the discoordinations in the patterns of production, consumption, saving and investment (that is, specialization and trade).
By the way, in my opinion a more correct (syntactically and semantically) expression would be SPST, sustainable patterns of specialization and trade, because what is sustainable (or not) is each specific pattern of specialization and trade.
Looking over the entire piece, I would say that the Hussman is 90 percent generic Austrian and maybe 10 percent PSST.
Yes this standard Austrian that the all bubble problems simply reflect on cheap credit instead of growing economies simply start producing so much. Anyway, the global economy seems to be giant version of the 1990s Japanese economy with near deflation, low rates and stagnant population. I think Model Behavior stating that the modern economy to (conflicting?) issues are too high housing prices and low population growth will domininate the next generation.
A question about PSST that bothers me (maybe I’ve not read the right paper?)
It is really pretty easy to see that patterns change in various market segments as technology, supply, demand, demographics, affect those markets.
Some changes (big time technology like computers/internet, electric motors, etc.) will change patterns basically everywhere in the economy over time. Other changes (fracking, say) will change particular segments.
But what causes these things to combine into recessions? Why don’t we see constant “mini recessions” in various segments, but rarely an economy wide one?
This is basically, as I’ve heard, the question the ABCT branch of Austrian theory seeks to answer.
If there is no such thing as “macro” then why don’t prices just adjust? Keynes skipped over the entire questions, as I understand it. He probably had thought but basically gave hand-waving responses “prices are sticky because they don’t adjust because they are sticky.”
I’ve never really understood the difference between PSST and ABCT. Have you elaborated on this somewhere?
Is it that in PSST the need for restructuring is driven by technological or other fundamental changes, whereas in ABCT it’s driven by changes in interest rates, independent of other fundamental factors?
Yes
PSST and ABCT are not mutually exclusive explanations of recessions. I can not see why you see them as strict alternatives.
Point of order, one should be charitable when evaluating “interpretive frameworks.”