Many economists say we still have a big output gap and that we will eventually return to the potential GDP trend from before the crisis. It is not a wise view. Let me reveal a mystery to explain. The following graph shows annual % growth for real GDP and potential GDP (center of business cycle). […]

The mystery revealed in this post is that potential GDP and labor share reflect each other. One thing people must realize is that potential GDP describes the center of the business cycle. (See video below for visual explanations.) It seems most people think potential means the top end of the business cycle, but they would […]