Loose leaf Economics

b1-66er: https://nyti.ms/3Kc9mTq

D4rw1n: I am no economist. My D+ in undergrad Econ 101 is a lasting reminder of that. But I have always understood the link between unemployment and the stock market quite differently than described in the article.

The article lays out the case that unemployment is a lagging indicator. Low unemployment rates indicate we are at the end of a period of good economic performance. 

It describes the stock market as a leading indicator. Poor stock market performance indicate that we are at the beginning of a period of bad economic performance.

That to me is somewhat new. It is also somewhat compelling. It seems to fit with the data, at least as I understand them right now. It seems like we've come off of a long period of excellent economic performance. It also feels like we're coming into a period of inflation and slow growth.

But I've always understood it slightly differently. The way I think of it, it is much simpler: companies love unemployment as a matter of simple supply and demand. The more applicants per job opening, the lower wages they have to pay. 

In my explanation, the stock market is reflecting how investors are valuing companies right now. So when unemployment starts to fall, investors know that companies are going to pay higher wages. That means they will have higher overhead. That means they will have lower profits. That means an investor will pay less to own equity in that company.

I like my explanation better than NYT's, since it does not require me to predict the future. Calling something a leading indicator inherently requires speculation. But noting that current labor supply and demand either favors high wages or low wages is much more straightforward.

b1: Much.

D4: But take all of that for what it's worth. I was notorious in Econ class for getting things exactly backward. If the correct answer was X, I frequently (very frequently) answered -X

b1: Your D+ serves you well.

I'm glad you passed.

D4: The only class I ever did worse in was Russian 101. And I had to drop that class mid semester to avoid a fat F. It turns out it's very difficult to master (or even, really, gain the first freaking clue about) a brand new language when the class meets five days a week and I was off campus every Monday and Friday at debate tournaments. The one consolation was that the textbooks were published in the Soviet Union. So the illustrations were all very heroic, and the vocabulary was all about factories, trains, and workers

I tried to keep that textbook as a souvenir. But it was so cheaply made it fell apart within a year

Come to think of it, so did the Soviet Union