How much more important would you like it to be?
It depends on whether you think of the picture as a picture of a healthy economy, or a picture of an unhealthy one. (Or as a schematic of the part of the model with which the paper is concerned - drawing the part of the setup which is the focus of a paper to a disproportionate scale/detail is fairly common.)
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
"Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
For that matter, there is another serious defect: There should be a political variable for "Profit levels" just as there is a political variable for "Private hourly compensation" - both of these go into the "Unit Costs."
And in my naivety, I thought that the rental price of capital (which is not, in the mature corporation, the same thing as the profit extraction variable) also had a direct influence on unit price in capital-intensive companies. At least if they have "efficient" balance sheets...
Is this model really being taught by the so-called experts? It's just a little - well - wrong, isn't it?
And while FIRE transactions are heavily involve in determining "rental prices of capital" ... in a model like the above, that's a functional model of price, so there's no actual FIRE sector representation ... their place is taken by falsified black box models acting as proxies. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
When the farming sectors faces trouble, the rest of the economy doesn't worry, even though it potentially means a threat to local food supplies. But when banking goes bad, everyone goes crazy, even though the worst thing that can happen is that some people won't get their loans repaid.
A grave threat to our agricultural sector would not be perceived as being nearly as significant as a less serious threat to the banks. In fact our response to such a threat to agriculture will probably be like that of the frog that fails to jump out of a pot of water that is being heated while it still retains the ability to do so. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Indeed, while the farming sector was already in trouble in 1930, the bank collapses of 1930, 1931 and 1932 certainly made that worse.
Which is why the major reform of the First New Deal that stands with the multiple reforms of the Second New Deal is Glass-Steagall, which did not allow commercial banking to play with the dangerous part of FIRE. The very same FIREwalls that the commercial banking system has been engaged in tearing down ever since.
If Glass-Steagall does not work over the long term in a financial-market dominated system, because of the ongoing efforts of commercial banks to act as middlemen for the financial markets, that seems to imply that a financial-market dominated system itself is untenable. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
