jgonion

John Hussman: Based on Okun's Law Obama's Stimulus Plan May Fall Short

With regard to Okun's rule of thumb, the key words are "is accompanied by", not "causes". This article appears to make the assumption that unemployment somehow *causes" a reduction in DGP: ("underestimates the economic impact of job losses").

On the contrary, unemployment is a lagging indicator of economic activity. Unemployment typically begins to rise *after* the economy slows, and usually continues to increase after the economy has turned around (Usually peaking 18 months *after* the bottom of economic activity.)

So rather than worrying about the "economic impact of unemployment", we should be worrying about the job losses that will be caused (18 months from now) by the downturn in economic activity.