Brian Romanchuk — Services And Production Decisions

One of the problems with many theoretical approaches to the business cycle is that there is an implicit bias towards a manufacturing economy. The modelling of business sector decision making for manufacturing is quite different than for the service sector. This matters, as the developed economies are increasingly services-driven (figure above). For consumer-facing service industries, output is largely demand-driven. This fits much better with the post-Keynesian approach.

This article is discussing a bit of a theoretical puzzle that came up when I was thinking about the next large instalment of business cycle articles. (Once again, my next project after the breakeven inflation analysis book is one on business cycles.) Rather than mess up that discussion with a long digression, I have broken this out into a small stand-alone article. I am not going to argue that what I am discussing is extremely deep, as it is possible to work around. However, we need to keep it in mind when discussing the varying approaches to business cycle analysis.

Bond Economics
Services And Production Decisions
Brian Romanchuk