One needs to read all the links to this link, before an understanding of the argument can be made; so be sure to follow all sourcing. Arnold Kling’s Recalculation theory is relatively simple to follow, as is the Schumpeter Quote provided by Krugman. Tyler Cowen gives some history as to previous development behind Arnold’s theory. It is here from which I will depart, outraging everyone with a modification of Arnold’s theory to be called the Recalculation Drain theory. I simply have to find some Point to start from in this quest for perfect theory, which may have literally nothing to do with Reality; nothing really works in economic theory except that which has been proven to work.
I guess the place to start would be that Statement that every Boom has some number of sectors that are particularly more successful than the greatest majority of sectors. This is the source of bubbles, with the outrageous growth of Price in the Products produced. Everyone talks about the bubbles which burst, but no one talks about what doesn’t burst. This consists of the Labor and Capital which has been devoted to production in the previously rising sector; the burst bubble insists on the plug being pulled on this concentration of economic assets. This is not your basic Recalculation, but a very real drain of assets from a sector. The Recalculation preforms whether the previous described drain has started as yet. The process uses new Labor and Capital if the described drain has not been accomplished. Here is the difficulty, and where Government Stimulus can be very harmful to the Employment and Production picture. The greater delay which is introduced into the draining process, the greater will be the underemployment of previous gainful economic assets, who have been sidelined by Recalculation effects ignoring these elements.
Government Stimulus can be harmful if the Recalculation to other sectors has utilized substandard Labor and/or Capital reserves, because the drain has been resisted by the Stimulus. The recalculated sectors not only do not utilize drained economic assets, but may be subjected to the employment of substandard performers in the production process. It is especially bad under consideration that the previous employment in the bubble sector had employed the most superior of economic elements–now left in limbo because of Stimulus efforts. The drain of the bubble sector must be accomplished before or keep pace with the Recalculation effort, or the economy will suffer from substandard employment, poor production performance, and a repayment schedule for the Stimulus effort which is very unreliable. I hope I have adequately confused everyone; I will not call Stimulus bad, simply piss-poor! lgl