Effective Demand is basically a demand limit upon the business cycle. Wouldn’t it be great if it could be determined? Then we would know where the limit of a business cycles is. Well maybe we can determine effective demand.
A simple equation for the Effective Demand Limit relates labor share to the utilization of labor and capital. Labor share represents the Effective Demand limit.
EDL = Non-farm business labor share * 0.762 – (capacity utilization*(1 – unemployment rate))
EDL will want to stay above zero, such that, labor share*0.762 (underlined on left) will stay above the utilization of labor and capital (underlined on right).
Here is the graph of the data. (link)
Recessions are in gray. The zero x-axis in the graph represents when the plot falls to near zero before each recession. EDL again has hit the same point that was hit twice before the 2008 recession.
I do not see a recession yet. Some are saying that we are close. Anyway, if a recession was to form again with the plot staying above zero, the equation would show an unusual consistency in predicting the limit of business cycles.