Current US Economy can (for now) be explained by:
Cobb–Douglas production function
In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly physical capital and labor) and the amount of output that can be produced by those inputs. The Cobb–Douglas form was developed and tested against statistical evidence by Charles Cobb and Paul Douglas during 1927–1947.
Formulation
In its most standard form for production of a single good with two factors, the function is
where:
Y = total production (the real value of all goods produced in a year or 365.25 days)
L = labor input (the total number of person-hours worked in a year or 365.25 days)
K = capital input (the real value of all machinery, equipment, and buildings) Definition of buildings need clarification. In the context of Capital, buildings include labor. Instead, commodities should be added.
A = total factor productivity and your usual depreciation by utility in day after
α and β are the output elasticities of capital and labor, respectively. These values are constants determined by available technology.
Output elasticity measures the responsiveness of output to a change in levels of either labor or capital used in production, ceteris paribus. For example, if α = 0.45, a 1% increase in capital usage would lead to approximately a 0.45% increase in output.
Sometimes the term has a more restricted meaning, requiring that the function display constant returns to scale, meaning that doubling the usage of capital K and labor L will also double output Y. This holds if
α + β = 1,
If
α + β < 1,
returns to scale are decreasing, and if
α + β > 1,
returns to scale are increasing. Assuming perfect competition and α + β = 1, α and β can be shown to be capital's and labor's shares of output.
In its generalized form, the Cobb-Douglas function models more than two goods. The Cobb–Douglas function may be written as:
where:
A is an efficiency parameter
L is the total number of goods
x1, ..., xL are the (non-negative) quantities of good consumed, produced, etc.
is an elasticity parameter for good I