D2 Business Cycle, Prices, Debt and Employment

Topic

GDP and its rate of variation, that is, the real growth of the economy, is the anchor against which both inflation and the economic cycle as a whole are measured. Inflation is compared at all times against that real growth: it is the distance between the two, and not the level of either separately, that matters. The economic cycle, for its part, enters its contractionary phase when GDP and its rate of change go through a sustained deceleration that coincides with an overaccumulation of capital, the same overaccumulation of capital that already characterizes this lane.

Productivity and the unemployment rate, although they measure different things, covary through the real wage: when productivity stagnates, the margin that supported the real wage disappears, and the real wage stops growing at the same rate as before. When the unemployment rate rises at the same time as the real wage falls, both feed the composite crisis index of the General Models group; And if this fall in real wages is added to the fact that productivity is also stagnant, the two also fuel the secular crisis of Cliodinámica. This double destiny—the composite crisis index of General Models and the secular crisis of Cliodynamics—is, precisely, the concrete way in which the resource regime lane drags Economy and Cliodinámica completely along every time that lane changes sections.

GDP and its rate of variation measure, together, the level of aggregate production and the speed at which that aggregate production grows or contracts. Its sustained deceleration, together with the aforementioned overaccumulation of capital, anticipates the contractionary phase of the economic cycle: neither of the two separately is enough, the sustained deceleration of GDP and its rate of change must coincide with the overaccumulation of capital so that the economic cycle is about to change phase.

Inflation measures the general rate of change in prices in the economy. Its acceleration, when it remains well above the real growth measured by GDP and its rate of change, is the direct sign of hyperinflation: it is not enough for inflation to rise once, this acceleration above real growth must remain sustained over time for hyperinflation to skyrocket.

The ratio between debt and gross domestic product measures the aggregate leverage of the economy: how much debt that economy accumulates in proportion to what it produces, measured by GDP itself and its rate of change. When this aggregate leverage grows above the debt service capacity, the relationship between debt and gross domestic product triggers the debt crisis.

Productivity measures the product generated per unit of work. Its sustained stagnation, combined with the stagnation of the real wage already described, directly feeds the secular crisis of Cliodynamics: when productivity stops growing, the margin that previously supported the real wage disappears, and that combination is one of the structural tensions whose co-occurrence activates the secular crisis.

The unemployment rate measures the fraction of the labor force that remains unemployed. Its sustained increase, combined with the fall in real wages already described, is one of the components that feeds the composite crisis index of General Models: the more the sustained increase in the unemployment rate and the fall in real wages feed back with the deviations of the Population, Power and Inequality indicators, the more the composite crisis index rises towards the irreversibility threshold that triggers Anomaly A1.

The five indicators allow, together, to monitor Economy from the resource regime lane: GDP and its rate of variation function as an anchor for both inflation and the economic cycle itself, the relationship between debt and gross domestic product monitors aggregate leverage on that same basis, and productivity together with the unemployment rate, linked by real wages, are what connect Economy with the secular crisis of Cliodynamics and with the composite crisis index of General Models — the same double connection that defines Economy. this lane as one that fully drags Economy and Cliodinámica every time it passes through a section.

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