The Role of Feedback in a Dynamically Stable Economic System

Abstract

Generally speaking, the stimuli to various types of technological change are associated with two types of anticipated feedback: hidden hand feedback (the possibility of making higher profits) and hidden foot feedback (the possibility of being dislodged from a successful market by the process of creative destruction). In this paper it is argued that the most significant gains in productivity result from hidden foot rather than hidden hand feedback. Moreover, it is also argued that the disappearance of such feedback has not only contributed to the productivity slowdown, but also to providing the economy with a very unique kind of inflationary bias in which inflationary pressures are likely to reach their maximum strength when the economy is headed into a downturn. Finally, various measures to restore the dynamic stability of the economy are considered.

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