I think we are witnessing the biggest silent shift in macroeconomic thought since the Second World War. For 70 years we have taught, and believed, that we would never again need to suffer a persistent shortage of demand. We promised ourselves the 1930's were behind us. We knew how to increase demand, and would do it if we needed to.Scott Sumner is on this issue, as is Arnold Kling.
The short answer is that we can keep demand up to nominal, we just lose our precision in doing so during a Recalculation. How does the economy find the best adjustment to a technology change? It first contracts, reducing the stages of production, then searches from there. The lesser stages of production make for imprecise solutions, but a faster search. As the rest of the economy fits in with the newly discovered constrained supply chain, we "snap back" to the number of stages of production that meets out biological constant of uncertainty.
That is what we are doing now, we are going through a discovery of the best global energy distribution. As in any major restructuring, the main search effort is getting government to figure out what they are doing right or wrong.
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