Imagine if the relevant “change variable,” in macro terms, was the ease and quality of matching.
In some mini-eras, matching does not work very well. The labor market is slow, real interest rates are low, and capital is very cheap. It is thus relatively easy for super-talented people — who often become quite wealthy — to commandeer resources for their grand projects. They can raise the money and they can raise the labor. We elevate the powers of those individuals.
The software infrastructure is built out, and solar power gets put on its way for a grander future. The progress foundations for the next generation or two are laid. At the same time, everyone complains that returns to savings are low, wages are sluggish, labor force participation is low, and so on.
In other mini-eras, matching works very well. The labor market is tight, and capital is hard to raise. So many of these resources already are allocated to where they ought to be, and not much is sitting around “slack.” Due to resource tightness and higher real interest rates, many projects end up abandoned. Yet the demand for labor is high and real wages are rising. Income inequality falls.
Sometimes these periods feel “especially boom-y,” because the concrete innovative fruits of the “poor matching era” finally are coming available. But truly new grand projects have a much harder time of it.
Perhaps one should behave and invest very differently, depending which kind of era it is? And are talent-spotting skills worth more in the poor matching era than in the well-matched era? Are there some sectors that always have a lot of slack resources? Music, intellectuals, the visual arts, NBA basketball, others? And in those cases talent-spotting skills remain valuable across the eras?
Yet none of this is true! The ease and quality of matching is not a relevant macroeconomic “hinge variable.”
p.s. Is it better that sometimes we have these periods of slack, so that the builders may do their thing!?
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