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Tuesday, March 21, 2006



isn't all capital human capital?

Arthur Eckart

It's all about terminology. Human capital is a term used by labor economists, which reflects education, experience, and training. Moreover, the 35-54 age group is referred to as "prime-age" workers, because it's the most productive group (and produces more than consumes). However, capital in the NeoKeynesian Production Function, i.e. Y = T(L, K, R, E,...X) refers to the capital stock (e.g. machinery) of firms, although there are interactions between labor, capital, and other inputs. It may be interesting to note that economic growth, along with structural bull and bear stock markets, run parallel with population growth. In the U.S., the Baby Boom Generation, born between 1946-64, coincided with the economic and stock market boom over the same period. The Baby Busters (Generation X), born between 1965-82, coincided with the bear market from 1965-82 (when there were two severe recessions and one moderate recession in a era of stagflation). Generation Y (another baby boom), born between 1983-00, coincided with strong growth and the Bubble Boom, because the Baby Boomers (of 1946-64) reached their most productive years. Also, I may add, the stock market "crash" of 2000 was a correcting mechanism to keep future labor supply and demand in equilibrium, i.e. the Baby Boomers will have to work longer rather than retire early. Moreover, the quick and massive "Creative-Destruction" process, after 2000, made U.S. firms (particularly in the Information Revolution) much more efficient (furthermore, cheap imports also make U.S. firms more efficient, because they're forced to produce more with less to compete with foreigners).

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