Tuesday, April 22, 2014

Take a walk on the wild side

Following up on Gene's link...

From: Interpreting Deviations from Okun’s Law by Mary C. Daly, John Fernald, Òscar Jordà, and Fernanda Nechio at the Federal Reserve Bank of San Francisco:

Whether we analyze Okun’s law with real-time or revised data, countercyclical loops tracing the relationship over time are a common feature. These loops reveal an underlying characteristic of the U.S. business cycle. Changes in employment—and likewise unemployment—lag behind changes in GDP. For example, faced with a shortage of demand, it takes time for firms to adjust staffing levels.

The article explains those loops in a way that makes good sense to me. (I didn't quote that part. You should read it.) The bit I quoted is just detail information about the loops. But I want to stop and smell the detail:

These loops reveal an underlying characteristic of the U.S. business cycle. Changes in employment—and likewise unemployment—lag behind changes in GDP.

Got it? The loops tell us something about the business cycle. What they tell us is that changes in the supply side lag behind changes in the demand side.

The supply side follows the demand side. That's what those loops tell us.

Supply follows demand.

1 comment:

Jazzbumpa said...

Supply follows demand.

Ergo, supply side economics is exactly the bull shit we always knew it to be.

JzB