Have you ever listened to the nightly business report and wondered how the newscaster determines the reason for the rise or fall of the stock market indices on a particular day? The newscaster provides cause and effect analysis on a daily basis, which presumes analytical skills beyond the average investor and an understanding of the broader economic context of that specific event. However, the newscaster does not explain either of these factors in the report. Joseph H. Ellis, the author of Ahead of the Curve, contends that most reports listeners hear have no basis in analysis or no relationship to actual occurrences of economic business cycles or the stock market.
In the Preface of the book, Ellis explains the basic theses of the book: the business cycle and its cause and effect relationships, the repeatability of which allows individuals to extract forecasts. Secondly, Ellis highlights some fallacies in common conceptions of the leads and lags in economic cycles. Unlike many economic commentators, he classifies a recession as a lagging indicator as well as employment and capital spending. He designated declines in consumer spending and hourly earnings as leading indicators. Finally, Ellis discredited month by month and quarter by quarter analysis as confusing and out of context. He preferred a year-over-year analysis of an economic cycle, which he called the ROCET--rate of change in economic tracking.
Presenting a statistical analysis of business cycles, Ellis clearly identifies independent variables and
related dependent variables. This approach simplifies the understanding of economics and allows
the reader to view economics in its basic elements, at the macro and micro level. Like Ellis, I wish that my Intro to Economics had started with this perspective and built the course from there. The next step, applying the method.
For the reader, Ellis publishes economic data on his website, http://www.AheadoftheCurve-theBook.com
Friday, December 13, 2013
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