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August 31, 2005



"Performance differences between firms increase markedly in recessions". Do any lessons follow concerning "incentivising" executives?


The aggregate demand view, on the other hand, is less easy to reconcile with the skewed distribution of firm performance . (I'd welcome a Keynesian-type rebuttal here).

It's a long time since I read Geroski, but isn't financial structure a classifier? So a Keynesian explanation would be that this is a non-issue; financial failure is what happens when weak demand meets a weak financial structure.

Rob Read

It certainly points to the error in "stimulating demand", by making debt cheap, and thus expanding the money supply, and creating inflation.


On the last point:

"Save for those firms who fail, it seems hard to see any permanent effects of recession."

Isn't there a bit of a leap there? Those firms failing means that they don't struggle on, wasting time and effort on either bad business plans (tastes and technology) or bad management teams. Surely the evidence of good firms in bad industries still thriving suggests that there's some creative destruction element there?

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