It is supposed, particularly by supply-side economists, that investment drives the business cycle. While I suggest fixating on any one component will lead to a myopic and sometimes misguided conclusion, it is very difficult to deny that employment is created through capital formation.
We have an interesting graph which makes the link between unemployment & capital formation clear. We have created a ratio: Capital Consumption as a fraction of Gross Private Domestic Investment. This measures how much of investment is new — higher values indicate that more of the investment is going toward replacement rather than expanding capacity. Apart from the very clear relationship, the ratio also seems to have a strong leading relationship — the unemployment rate converges on it. It appears to suggest that the unemployment rate may drop in response to a push for new, non-replacement investment. At the same time, investment in general seems to be lead by Total Investments at Commercial Banks: The question is: what will lead to a greater appetite to invest?-
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- A Few Good Reads, Redux | Derek Hernquist on Unemployment in the Age of Capital Abundance
- Matt Busigin on Unemployment in the Age of Capital Abundance
- Benign on Unemployment in the Age of Capital Abundance
- Benign Brodwicz on The Three Types of Marginal Capital Allocation
- The Three Types of Marginal Capital Allocation | Macrofugue Analytics on The State of Rentierism
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