Saturday, March 21, 2020

Will write soon on the real economy

What is happening to the real economy right now is straightforward from the perspective of the supply and demand for labor and capital.  This perspective shows how the real-economy costs are massive, and largely unnecessary, especially to the extent that they continue more than a week or two.  (I discussed the political economy of this here).

This perspective shows how the recovery will look.

This perspective shows why equities are so much cheaper, beyond what is "justified" by reductions in the future dividend stream (hint: Irving Fisher, but as I have written in the past, do not interpret "interest rate" as the yield on Treasury Bills or Fed Funds but rather as the profit rate on real capital). 

I will write up the details soon.

1 comment:

Eric Rasmusen said...

Please do write on this-- I've just been searching for it. Suppose GDP falls 15% in 2020 and grows 2% in 2021. How much should the S+P500 fall now? Or, if you like, what has to happen to corporate earnings to justify the 30% fall in stock prices that we've seen?