I said in a previous post

Keynes made the point that there is deep uncertainty and so maximization fails. However, this is only true if maximization is a conscious process. If instead maximization proceeds through evolutionary means this need not be true. The firm doesn’t have to understand what its doing anymore than you need to understand how you are breathing.

Just this morning though I was thinking I might like a thermodynamic/evolutionary view better.

In this case you have lots of firms bumping around like gas molecules in a jar. They have no real idea what they are doing, of course.

However, selective pressure eliminates molecules/firms moving in a particular direction. In real life say, firms serving lower-middle income consumers. These firms are destroyed.

This changes the net velocity of the economy in the direction of firms serving upper income customers. Remember we have to sum-over the velocity of all molecules/firms.

The result we will experience at a macro level is increased pressure towards a an economy that serves high-income consumers. Looking at aggregate we interpret this as an economy-wide movement, but of course we know its selection combined with random motion.

Indeed, if take a far enough perspective it may even look as if the economy planned or somehow organized itself to accomplish this, but no such planning or organization occurred.

Now, where is the rub. The rub is in the “temperature” inside the vessel. If the temperature falls then the molecules/firms will continue along their way but at a slower rate.

And, indeed, the pressure will fall. The economy will look like its going wherever its going at a slower pace.

This temperature could correspond to something like animal spirits. A hot economy causes all firms to move more vigorously in whatever direction they are moving. This means bad firms are selected out faster and good firms move further in direction of progress and so the net pressure is greater.

This corresponds with one of my favorite stylized facts which is that job turnover falls during a recession. This means at least by one measure a recession economy is less dynamic. It even has fewer jobs destroyed.

That could correspond to lower selective pressure.

Here is your gratuitous chart of the effect I speak of.

FRED Graph

This is Total Separations. That’s a measure of how many jobs are being “destroyed” see how tightly it matches the business cycle and our feelings about the economy.

Total seperation, which includes quits does better than total layoffs.  Total layoffs don’t look that different than 2006 and never really rose during the awful jobless recovery of the early 2000s.

FRED Graph

I find that a really interesting an important fact.

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