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I see your point, but I was aiming at something else. I'll rephrase.

I see a conflict between an empirical and an idealistic approach. In the empirical approach wheter banks do or do not create spending power out of thin air is an empirical question that can be checked. In the idealistic approach wheter banks do or do not create spending power out of thin air is a question that is ruled by getting the simplest representation possible.

The idealistic models will thus have a preference for simplicity that is unchecked by empirical findings. Which then leads to oversimplification.

This may look terribly unfair, but Krugman is arguing that his description of banks is better because it has fever assumptions, without any reference to wheter the assumptions can be checked or not. And that is just straight out of scholasticism.

Or to put it another way, this is the impression I get when I read these articles.

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by A swedish kind of death on Wed Mar 28th, 2012 at 08:11:06 AM EST
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