Market Signals

My, that Arnold Kling is smart! Here‘s a great little essay about what’s going on with the economy. The heart of it is this:

The market is sending signals that some industries need to expand and other industries need to contract. However, it takes a long time for these signals to work their way through the economy and get processed to the extent that people get new jobs and so forth. Meanwhile, we get employment and production that are below capacity levels.

I believe that these signals, telling different industries to expand and contract, happen on an ongoing basis. But sometimes the signals come abruptly because something somewhere hits the wall. Recently, this has been the housing/mortgage bubble, which ended abruptly. The market is telling us that we need fewer new homes that require long commutes. But what do we need more of? What’s gotta grow? That’s always the question for investors.


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