chakravyuha

• The great moderation – It has been wrongly assumed that aggregate volatility declined in the US economy and other developed economics in the OECD and business cycles were conquered.
• Economics started believing that we mastered the crafts of monetary policy or new tech changed the way firms respond to demand changes or supply or production opportunity.
• Note quite a softening of creative destruction. Finance if more available and economy is more dynamic ans so resources go more easily from firms with less opp to ones with more opp.
• Financial sector is better able to diversity idiosyncratic risks. Firms can better exploit their comparative advantage quite quickly.
• Labor and capital markets are so dynamic.
• WalMart epitomizes very effective use of technology. so it’s able to respond to shocks much better. They are respond to able to low/high demands in areas quick, flexible supplu chain, inventory control.
• beneficial role of technology.
• Monetary policy has become much wiser so it softens the impact of a variety of shocks.
• BUT, decline in aggregate demand.
• Nothing in social life is independent of human agency.
• Financial innovations leads to diversification benefits and reduction of idiosyncratic risks.
• Web of counter-party relations risks was not appreciated. Financial system of IOUs . If one set of IOUs failed the next set was also bought in trouble.
• We have diversified a lot of regular risks but system is fragile to real tail-event.
• Russ Roberts believes that the 25 years monetary policy success principles were left by Alan Greenspan.

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