Paul Krugman (2013), by no means an adherent to Austrian economics, has drawn attention to the asymmetry problem of booms and busts: the phenomenon that increased unemployment occurs during the structural adjustments of the bust, but not during the structural adjustments of the boom, which he explains by reference to downward wage rigidity. During a boom period wages tend to rise, but during the bust they do not fall as much and as rapidly as they should in order to prevent increased unemployment.
An alternative explanation is provided by Andolfatto (2013), who argues that the most obvious cause for asymmetry is not to be found in nominal rigidities, but rather in the mass destruction of productive relationships, which takes place during the bust. In his view, the labor market is a market for productive relationships, or what he calls relationship capital. Just like physical capital, relationship capital is redirected onto unsustainable paths during the boom. Relationships are built up, intensified, replaced or adjusted during the boom, merely to get destroyed during the bust. In his own words:
The basic idea is very simple. [. . . ] The labor market is a market for productive relationships. It takes time to build up relationship capital. It takes no time at all to destroy relationship capital. (It takes time to build a nice sandcastle, but an instant for some jerk to kick it down.) (Andolfatto, 2013)
—Karl-Friedrich Israel, “The Costs and Benefits of Central Banking: Modern Monetary Economics along a Methodological Dividing Line” (PhD diss., Université d’Angers, 2017), 250-251.
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