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nomy is transaction the k r shift the long decline the supply side the tint knob they don t know timeline tongue in cheek tot ulc umic unsustainable urgency verdoorn waste fraud abuse withering shoots zoho the new arthurian economics copyright 2010 2018 arthur shipman showing posts with label ulc show all posts showing posts with label ulc show all posts sunday july 28 2013 it s cheating but nobody seems to notice from yesterday s post employee compensation relative to gdp graph 1 employee compensation as a share of gdp if employee compensation is falling how can unit labor costs be rising graph 2 comparing employee compensation as a share of gdp blue to unit labor cost red it s because unit labor cost is employee comp multiplied by the price level graph 3 multiply employee compensation as a share of gdp by the gdp deflator and it starts to look just like unit labor cost oh they re not so blatant about it of course the calculation for graph 3 is crude you can see that the gdp deflator is multiplied in the deflator is a measure of prices so you can see that prices are multiplied in that s crude but you can rearrange the formula and still get the same graph graph 4 divide compensation of employees by gdp divided by the gdp deflator and we get the same picture as in graph 3 in this version we don t multiply prices into the employee compensation gdp ratio instead we divide prices out of gdp and divide employee compensation by the result but the calculations are equivalent so graph 4 looks just like graph 3 but once we have the formula arranged this way you might notice that the denominator the nominal gdp divided by gdp deflator part is the calculation that gives what economists call real gdp so you can use that instead it s shorter and cleaner and it has the word real in it so everybody likes it when you make the graph using real gdp it still looks just like graph 3 and graph 4 graph 5 divide compensation of employees by real gdp and we get the same picture again because real gdp is equal to nominal actual price gdp divided by the gdp deflator it s still the same picture it s still the same calculation it still has prices factored in but now not even an economist can see it they ll tell you they are dividing by real gdp you know but there is no such thing oh the cars are real and the houses and the cups of coffee in the morning those are very real and the apples and the oranges all of it all the pieces are real but it s all apples and oranges you can t add the values of all those things together na na na you can t figure the values of all those things in prices that never go up without doing complex calculations based on actual gdp the so called nominal gdp i mean and the changes in prices there is no real gdp there is only nominal gdp actual gdp at actual prices after that it s all calculation when they tell you they are dividing by real gdp they are really dividing by estimates of actual gdp with price changes stripped away oh they may have a series of numbers that s called real gross domestic product all right and they may have incomprehensible stories about how real gdp is calculated but if you factor price changes into their numbers you get nominal gdp and if you take actual gdp and factor price changes out of it you get their so called real numbers no matter how you slice it if you are dividing by real gdp you will get exactly the same result if you divide by actual gdp and factor price changes into the result and the thing is actual gdp is the actual one real gdp isn t they take numbers like employee compensation going down relative to gdp they times it by prices to make the numbers go up they say look look labor costs are going up and they claim that rising labor costs are pushing prices up it s cheating but nobody seems to notice posted by the arthurian at 4 00 am 3 comments labels simulated evidence ulc saturday october 6 2012 kaminska and unit labor cost another look at the ft post we considered yesterday izzy kaminska is poking around trying to explain what the economy is doing her discussion starts with a review of several unsatisfying explanations for the excellent productivity of the late 1990s in the u s economy but that excellent productivity long since expired and kaminska ends up trying to explain the very bad economic recovery of the present day she seems to think alan greenspan s original explanation technology is now working in reverse undermining jobs instead of creating them she shows some graphs to make her case one of those graphs is the unit labor cost graph it is the reason we come back to kaminska for this post she writes unit labour costs the labour cost attached to the production of one unit are staying positively muted she shows a fred graph graph 1 the unit labor cost scam the positively muted remark refers to recent data at the right end of the plot where at first glance the blue line seems to be running flat rather than rising at second glance however the line isn t running flat it went down a bit during the recession but it has been going up since the recession and if you look a third time it appears that the going up part is going up at about the same rate as the going up that was going on for 20 years before that recession so i don t know what kaminska s talking about whatever it is that the unit labor cost graph shows it is going up now just like it was going up before the great recession what does it show kaminska seems to think the graph shows labor cost how does she describe it the labour cost attached to the production of one unit oh right right one unit as i showed the other day the unit labor cost plot is almost identical to the price level plot graph 2 unit labor cost blue and the price level red the similarity between ulc and the price level is so remarkable as to inspire disbelief and well it should for the red line is used to calculate the blue line to calculate unit labor cost labor costs are multiplied by prices and then the graph is used to claim that labor cost makes prices go up to use the unit labor cost graph is to say inflation times x looks like inflation so x is the cause of inflation the price number series is used to calculate unit labor cost but if you take the price number out of the labor number you see that the labor number is just going down relative to gdp graph 3 total labor compensation including benefits relative to gdp index 2005 100 click graph for fred source page again the labor number is going down the labor number multiplied by prices is going up and the labor number multiplied by prices is used to support the claim that the labor number is what makes prices go up the graph is worse than worthless it s fraudulent related posts unit labor cost the uses of fake gdp 2 unit labor cost no matter what the red line does the fraudulent use of arithmetic posted by the arthurian at 4 00 am 10 comments labels ulc wednesday september 26 2012 the fraudulent use of arithmetic just about a year ago i considered a post by steve randy waldman i need another look at steve waldman s interesting layout of our economic problem prior to the 1980s the marginal unit of cpi was purchased from wages prior to the 1980s central bankers routinely had to choose between inflation or recession then came the great moderation the signal fact of the great moderation was that the marginal unit of cpi was purchased from asset related wealth and consumer credit rather than from wages so in this view the policy change was a change from intermittent wage suppression to continuous wage suppression it s a tidy thought but that doesn t make it right i do not accept waldman s tidy analysis the federal reserve does not manage wages what waldman was saying just didn t make sense to me despite several attempts by himself and myself to make it make sense to me time goes by my recent symmetry in deception series drawing to a close the other day i googled unit labor costs and turned up interfluidity restraining unit labor costs is a right wing conspiracy from half a year back waldman opens thus in an otherwise excellent post matt yglesias commits one of the deadly sins of monetary policy m y favorite indicator of inflation is unit labor costs unit labor costs are basically wages divided by productivity it s not the price of labor in other words but the price of labor output if productivity is rising faster than wages then even if wages themselves are rising unit labor costs are falling conversely if wages rise faster than productivity than unit labor costs are going up that all sounds reasonable but yglesias has fallen into a trap unit labor costs are not basically wages divided by productivity that s not the right definition at all unit labor costs are nominal wages per unit of output with a little bit of math it s easy to show that unit_labor_costs price_level labor_share_of_output an increase in unit labor costs can mean one of two things it can reflect an increase in the price level inflation or it can reflect an increase in labor s share of output i ve omitted waldman s update where he acknowledges that something like yglesias s definition of unit labor cost a one hour s wage version i think may be correct update omitted waldman s definition of ulc agrees with the yourdictionary definition and with the oecd s definition and with my definition as created by yourdictionary and confirmed by oecd waldman refers to nominal wages as labor share my accepted sources refer to total labor cost or wages plus benefits let us say the confusion here is the same confusion described in wikipedia compensation of employees which i noted here but waldman is close enough for now that discrepancy is not my topic waldman writes unit labor costs are nominal wages per unit of output nominal means at the prices actually paid inflating though they be output is gdp with caveats often the word output is used to mean real output or real gdp or figured at prices that have been reduced to remove the effects of inflation all too often with the effects of inflation surreptitiously removed waldman points it out by waldman s definition and mine unit labor cost divides an inflating quantity by an inflation adjusted quantity division by an inflation adjusted quantity is a back door sneaky deceptive way to bring inflation into the result of the calculation waldman points this out too unit_labor_costs price_level labor_share_of_output it is a very big deal rule 1 always be wary of the word output it is often found in bad arithmetic waldman looks at his formula notices that two things the price level thing and the labor share thing go into unit labor cost and translates the math into english an increase in unit labor costs can mean one of two things it can reflect an increase in the price level inflation or it can reflect an increase in labor s share of output yes but let me ask you this what is unit labor cost used for easy answer just recall what yglesias said as quoted by waldman m y favorite indicator of inflation is unit labor costs unit labor cost is used as an indicator of inflation right multiply inflation into labor share of output use the resulting numbers as an indicator of inflation and when you see inflation in the numbers blame labor share again multiply inflation into the labor number feign to discover a similarity between inflation and the resulting number and blame the labor number for inflation used in the denominator the calculated value called real output often simply called output surreptitiously creates the appearance of similarity between inflation and the labor number refer to rule 1 waldman s unit labor cost post isn t really about ulc really it is about the fed s direct suppression of labor s share same as his post that i reviewed a year ago funny thing is in this post that made sense to me this part sums it up for labor s share to expand either the price level must fall or unit labor costs must rise faster than the price level but the fed responds aggressively to rising unit labor costs and is committed to preventing any decrease in the price level under this policy regime expansions in labor s share are pretty difficult to come by agreed okay but now that i ve belatedly agreed with steve randy waldman about the suppression of labor s share now i feel free to disagree with him over ulc waldman finds a bad definition of unit labor cost corrects the definition and then evaluates it given that there are two factors prices and labor s share that go into ulc waldman expresses the relation clearly an increase in unit labor costs can mean one of two things yes and i don t deny it given the formula for unit labor cost waldman reaches the only conclusion that can reasonably be reached this is where i disagree with waldman given the unit labor cost formula waldman accepts that formula i do not waldman thinks of the ulc as economics to be evaluated i see it as bad arithmetic to be dismissed if the formula no wait we don t accept or reject formulas because we think they produce results we like or don t like rather formulas are either valid or not on their own merits if the formula is valid we must accept it if the formula is not valid we must not accept it the unit labor cost formula is not valid not when ulc is used as an indicator of inflation it is not valid because inflation is factored into the ulc numbers on a graph ulc appears similar to inflation because inflation is factored into the numbers any comparison of ulc to inflation is a fraudulent use of arithmetic the unit labor cost formula factors the price trend into its results and allows us to discover that the results show similarity to the price trend the logic is circular the logic is not valid the formula must be rejected rule 2 if real output is in the denominator reject first and ask questions later posted by the arthurian at 12 00 pm 2 comments labels symmetry in deception ulc monday september 24 2012 symmetry in deception similarities between unit labor cost and money relative to output consider the mathematical deception entangled in the unit labor cost ulc calculation and in the comparison of money relative to output mrto to inflation both follow the same pattern 1 divide gdp by a price index to get a fraction called real gdp 2 use this fraction as the denominator of another fraction 3 compare the result to inflation and find similarity the mrto uses this formula m2 gdp prices the ulc uses this formula total labor cost gdp prices in both cases we divide by the fraction gdp prices the schoolboy s rule to divide by a fraction invert and multiply tells us that the mrto calculation in fact is m2 gdp prices the ulc calculation in fact is total labor cost gdp prices in both cases a ratio is multiplied by prices and the resulting numbers climb upward on a path comparable to the path of prices for prices both use the gdp deflator without multiplying by prices neither ratio is similar to the trend of prices milton friedman s money relative to outpu...