ABSTRACT
I am going to start with an analogy that you will not like. I am not crazy about it either, but it is important to understand it, even if you would like to undermine it. I, myself, will do a little bit of that in a moment. Imagine a fairly high-cost paper mill, specializing in the production of a kind of paper that is gradually being replaced by computer networks. Naturally, the production of this paper is more profitable when the whole economy is prosperous, because the demand for paper is greater. But it does poorly in recessions. The company is gradually losing its markets, and would lose them more rapidly were it not making bigger and bigger price reductions. There may even be some import competition to contend with. Macro-policy probably should not be much concerned about this situation, and probably could not do much about it even if it were concerned. It looks like a case of shape up or ship out.
