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No One Saw it Coming?

by ChrisCook Sun Jul 12th, 2009 at 11:47:25 AM EST

It was interesting to see Dirk Bezemer's recent paper hit the top of the charts at the Seeking Alpha site

John Lounsbury - No-one saw it coming

Dirk is (like me) a member of the Gang 8 "Creditary Economics" Yahoo list.


A research paper, published in June by Dirk J. Bezemer, Groningen University, addresses this question and says the answer is that many saw it coming but those with the power to act did nothing. Bezemer contends that the problem is that economic policy is executed using macro equilibrium models and what is needed to establish economic policy that can anticipate crises, such as we have now, and take actions to head them off, are micro accounting cash-flow models. The entire paper can be read here.

No One saw this coming

First, let me show you a table that Bezemer has prepared listing some of those who saw it coming. Table is in two parts for graphics processing reasons.

Lounsbury's excellent review of Bezemer's paper then summarises Bezemer's key point that the conventional Washington University Macro Model is actually detached from the real world. (my bold)

The "WUMM" is a quarterly econometric system of roughly 600 variables, 410 equations, and 165 exogenous variables. Figure 4 presents a schematic overview. The boxes indicate the variables included in the model. In the present context, the important observation is that all are real-sector variables except the money supply and interest rates, the values of which are in turn fully determined by real-sector variables. In contrast to accounting models, the financial sector is thus absent (not explicitly modelled) in the model.

In other words, the elements in the economy that are at the root cause of the current crisis are absent from the models of economic activity that are used to guide economic policy. The entire financial sector is absent. The very elements that have siphoned the life blood out of the economy have been completely off the radar screen. The FIRE (finance, insurance and real estate) was hidden behind a shield of invisibility, just pumping money into their coffers until the real economy bled out.

Bezemer discusses the result:


Perhaps because of this omission,Macroeconomic Advisers chairman Joel Prakken could tell Reuters as late as September 2007 that the probability of recession was less than 50%, a "slightly higher risk than it was a month ago but not a dominant risk." This was well after Godley and associates in April 2007 had predicted output growth "slowing down almost to zero sometime between now and 2008" and in November 2007 forecast "a significant drop in borrowing and private expenditure in the coming quarters, with severe consequences for growth and unemployment".

(Note: Godley is one of the people Bezemer has singled out as having analyzed and forecast the current crisis correctly.)

Bezemer concludes that the reason this condtion exists is that macro equilibrium theory dominates academia and has become institutionalized in governments. He defines the objective of his paper to encourage the merging of accounting and economic theory. He has some interesting things to say about factors that are missing from the macro equilibium view, factors highlighted by John Maynard Keynes.

Most of the analysts discussed in the Appendix reject rational equilibrium on the basis of arguments related to economic psychology and to the Keynesian notion of `radical uncertainty' (as opposed to calculable risks).

Keen, in a 1995 article titled `Finance and Economic Breakdown' explained that "Keynes argued that uncertainty cannot be reduced to `the same calculable states as that of certainty itself' whereas the kind of uncertainty that matters in investment is that about which "there is no scientific basis on which to form any calculable probability whatever. We simply do not know" (Keynes, 1937:213-24).

Keynes argued that in the midst of this incalculable uncertainty, investors form fragile expectations about the future, which are crystallized in the prices they place upon capital sets, and that these prices are therefore subject to sudden and violent change.

The reference to Keen is to Steve Keen.

Bezemer's paper includes Michael Hudson's diagrammatic representation of the economy.

This has a simplicity and elegance that appeals to a Bear Of Little Economic Brain like me.

In essence, the assembled panoply of neoclassical Nobel prize winners; their camp followers, and MSM cheerleaders did not connect the FIRE area in pink to the rest of the Economy.

D'oh.....


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Actually, I think Krugman was years ahead of all those people.  He was warning about a housing bubble back in the early-2000s.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Jul 12th, 2009 at 12:20:45 PM EST
So was Godley, I just looked him up on Guardian website and he has some prescient essays from that time.

keep to the Fen Causeway
by Helen (lareinagal at yahoo dot co dot uk) on Sun Jul 12th, 2009 at 05:20:18 PM EST
[ Parent ]
Truth be told, the blogs were ahead of the vast majority of the sharp people on this.  When Greenspan slashed rates to 1%, a lot of economists, (most ex-)realtors, financiers, etc, jumped online and started blogs about the housing bubble and epic crash.  The tubez are littered with them, some shut down and some still going.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Jul 12th, 2009 at 07:26:03 PM EST
[ Parent ]
then there's the top analyst from the Bank for International Settlements HQ's in Basel.  This story is amazing.   talk about inner circle!


The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS's supreme executive body, takes place once a year. The central bankers -- from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) -- are fond of the Basel meetings. When they arrive, the BIS's dark office building at Centralbahnhof 2 in Basel suddenly comes alive. Secretaries inhabit the otherwise deserted offices of the governors, stenographers and chauffeurs stand at the ready and dark limousines wait outside.

it gets better


White and his team of experts observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market. To give all this money somewhere to go, investment bankers invented new financial products that were increasingly sophisticated, imaginative -- and hazardous.

As far back as 2003, White implored central bankers to rethink their strategies, noting that instability in the financial markets had triggered inflation, the "villain" in the global economy. "One hopes that it will not require a disorderly unwinding of current excesses to prove convincingly that we have indeed been on a dangerous path," White wrote in 2006.

Put yourself in White's shoes...


The Jackson Hole paper was an assault on everything Greenspan had preached and, as everyone knew, he was not fond of being contradicted. Other members of the audience glanced surreptitiously at the Maestro to gauge his reaction. Greenspan remained impassive, his face expressionless behind his large spectacles, as he listened to White. Later, during a more relaxed get-together, he refused to even look at White.

White suspected he had failed to convince his audience.

"You can lead a horse to water, but you can't make it drink," he says.

This article deserves to be read and then digested, even if it comes from Der Spiegel.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Sun Jul 12th, 2009 at 12:59:39 PM EST
 "and provided evidence of the lack of credibility of the rating agencies."

nuff said.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Sun Jul 12th, 2009 at 03:04:30 PM EST
[ Parent ]
No one saw it coming?  More like no Serious PeopleTM listened to those who did see it coming.  Our society currently is not organized in such a way as to allow any significant prior constraint on the machinations of the big money boys, and they own enough of the system to veto any attempt to change this fact.  Hell, we can't even get enforcement of existing laws that should constrain them.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jul 12th, 2009 at 02:27:55 PM EST
People who raised the alarm by definition became un-Serious People...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Jul 13th, 2009 at 12:31:18 AM EST
[ Parent ]
Thank you Chris. Great link. Although, i don't really understand what Mr. Bezemer means with "accounting model". Even that Hudson's model is too complicated ;). Only 3 boxes would be necessary: Fire-Production-Government. Only Production creates wealth, others are costs.
There is a basic contradiction in this neoclassical economics. To create wealth the costs should be low and production high. However, FIRE-sector has no incentive to be "cheap". On the contrary they try to grab "profits" as much as they can. And increase costs as much as possible. Wealth creation is destroyed and no one sees it coming.
by kjr63 on Sun Jul 12th, 2009 at 04:10:40 PM EST
Depends what you mean by Wealth....

You can have high production of lots of low cost stuff, but it's not exactly what most people would understand as "wealth" even though it may create lots of fiat money aka IOU claims over wealth.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jul 12th, 2009 at 05:37:24 PM EST
[ Parent ]
... it takes going concerns to produce, but that does not mean that the productivity of going concerns is independent of their context.

So, while obviously markets create nothing, they are effective institutions to permit the decentralization of the creation process.

And going concerns are not restricted to the formal "productive" sector ... all modern industrial economies involve a mix of productive activity by privately directed going concerns and by publicly directed going concerns.

And of course, while we imagine that industrialization as a linear process of abstraction of production from the household sector, with the decline of household subsistence production ... there are certain zones where we have become accustomed to finishing the production process after buying the product ...

... and it seems likely that the average share of subsistence production in the household sector will begin to rise again over the century ahead.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jul 12th, 2009 at 07:07:12 PM EST
[ Parent ]
"wealth": It took me a long time to arrive at meaningful translation, in fact a close encounter with AmEx hiring inquisition. Wealth is a synonym of permissable leverage and is not equivalent to market value of assets (e.g. gold bracelets) or even reported net income (e.g. liquidity). It is a political trope, of this I am convinced.

Diversity is the key to economic and political evolution.
by Cat on Sun Jul 12th, 2009 at 07:23:43 PM EST
[ Parent ]
Yep - it's a symbol for permissable leverage.

You can create wealth just by being aggressively leverage-ish enough.

The current cult of wealth is a feudal cult of leverage. The associated numbers are a misdirection.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jul 12th, 2009 at 08:44:27 PM EST
[ Parent ]
The feudal system has rights and obligations both ways. The current system is one way, thus not particularly feudal.

--
$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Tue Jul 14th, 2009 at 08:21:41 PM EST
[ Parent ]
nitpicker :D

Diversity is the key to economic and political evolution.
by Cat on Wed Jul 15th, 2009 at 01:49:13 AM EST
[ Parent ]
... system involved rights and obligations in both directions ... in many cases the flows of rights and obligations amongst members of the feudal aristocracy worked better than the flow of obligations from the aristocracy to the commons, which were in many cases honoured in the breach rather than the act.
 

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Jul 16th, 2009 at 03:37:11 PM EST
[ Parent ]
MarketTrustee:
Wealth is a synonym of permissable leverage
Excellent insight.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
by Migeru (migeru at eurotrib dot com) on Wed Jul 15th, 2009 at 04:14:31 AM EST
[ Parent ]
Yes, not all production is wealth. My idea is that wealth is a "surplus" with useful "use value".. or something like that..
by kjr63 on Sun Jul 12th, 2009 at 07:38:18 PM EST
[ Parent ]
... wealth with the ability to claim a share of the wealth produced by others.

"Wealth" in the financial press is a position in the interstices of the system that allows the person in that position to extract a toll from the going concerns that generate actual wealth in return for permission for to be allowed to generate that wealth.

"A lovely little productive enterprise you got 'ere, guv'na, shame if somefink was to 'appen to it..."

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Jul 13th, 2009 at 12:22:31 AM EST
[ Parent ]
I don't know if i understood you correctly, but i guess we talking about the same thing. Wealth is the amount of (useful) produced goods and services, whatever the amount of claims (money, financial assets) to this wealth there are.
by kjr63 on Mon Jul 13th, 2009 at 10:42:39 AM EST
[ Parent ]
How are you defining "useful"?
by Colman (colman at eurotrib.com) on Mon Jul 13th, 2009 at 10:49:19 AM EST
[ Parent ]
Oh boy, improves the well being of human race..
If we look this thing from purely economic perspective, i guess it is possible to make a quite good definition of "wealth." However, all values are not economic. And "wealth" should be approached from different angles. By people with different perspective.
by kjr63 on Mon Jul 13th, 2009 at 01:12:46 PM EST
[ Parent ]
As noted elsewhere in the comment thread, 'wealth' as used in the context of the financial press is "ability to hold up the productive sector for ransom", so in your terms, the phrase "wealth creation" in the financial press refers to an increase in the ability to grab wealth created by someone else.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Jul 13th, 2009 at 11:03:41 AM EST
[ Parent ]
Obviously they use the term like that, but issuing claims to wealth does not create wealth. It just transfers money from one pocket to another. Perhaps they think that money in the pocket of "serious people" is better than in the "non-serious".
by kjr63 on Mon Jul 13th, 2009 at 01:33:41 PM EST
[ Parent ]
But this is a semantic argument. You use the word wealth to mean one thing. They use the word wealth to mean something else.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Jul 13th, 2009 at 03:17:43 PM EST
[ Parent ]
You have the right idea, if you want to be sane about it (which is usually disadvantageous these days), but you're confusing the ability to produce stuff of actual value (cars, sofas, computers, whatever) and accumulate assets while reducing -- at least relative to assets -- liabilities with the assortment of clowns and criminals playing hot potato with funnymoney.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Jul 13th, 2009 at 08:42:36 AM EST
[ Parent ]
for one misleading aspect of it.  The relative sizes of the boxes give the impression that F.I.R.E is a lot more important to the economy than it really is.  The employee/consumer and producer/employer boxes should be much larger in size to prevent a reader from coming away with an exaggerated impression of the how critical FIRE is supporting to human living conditions in an economy.  Credit institutions are important, but not critical, to the functioning of an economy.
by santiago on Sun Jul 12th, 2009 at 04:14:04 PM EST
You are correct in your description of what the relative sizes of the boxes ought to be.  Sadly, the diagram better represents the actual sizes.  When the USA did manufacturing in US facilities the relative sizes were different.  FIRE has become a giant parasite on the body politic, like a giant leach.  But this leach has captured the brain of its host.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jul 12th, 2009 at 04:33:23 PM EST
[ Parent ]
The FIRE sector crashed the rest of the economy. On its own.

How much more important would you like it to be?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jul 12th, 2009 at 04:37:33 PM EST
[ Parent ]
Well, the two are not mutually exclusive: The FIRE sector crashed the economy because it got bigger than its economic function merited.

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

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 12th, 2009 at 05:08:30 PM EST
[ Parent ]
...and here's what it's up against.....



"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sun Jul 12th, 2009 at 05:33:28 PM EST
[ Parent ]
And the FIRE sector goes into the boxes "Money supply" and "Rental prices of capital," no?

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...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 12th, 2009 at 05:42:26 PM EST
[ Parent ]
I think the FIRE sector goes in a special box with flames coming out of it. Next to the desk with the pile of coke on it.

Is this model really being taught by the so-called experts? It's just a little - well - wrong, isn't it?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Jul 12th, 2009 at 06:02:35 PM EST
[ Parent ]
... which is more important. Being a modern macroeconomist involves a trained incapacity to understand that money is not neutral ... not in the short period nor in the long period.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Sun Jul 12th, 2009 at 07:13:00 PM EST
[ Parent ]
Actually, only the commercial banking sector is in the "money supply" box, and the money supply box involves pretending that the money supply is exogenous, so it is "money supply including the banking system assuming that the banking system acts as a passive transmitter of Central Bank policy.

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.

by BruceMcF (agila61 at netscape dot net) on Sun Jul 12th, 2009 at 07:10:59 PM EST
[ Parent ]
It's true. FIRE did break the economy, and recessions caused by financial system failures are always much worse than when caused by declines in other sectors.  However, as at least one of the economists in the list in this diary have shown -- Schiller -- the reason that FIRE can do so much damage to the economy is precisely because people think it is much more critical than it really is. 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.  Go figure.
by santiago on Sun Jul 12th, 2009 at 10:13:41 PM EST
[ Parent ]
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.

Our government and society is no longer organized for the benefit of farmers.  For more than a century our society and government have been organized for the benefit of those with lots of wealth, call them the capitalists.  That organizing effort has increasingly come to be exercised through the big banks.  That organization extends to media and to educational institutions.  So we have been conditioned to see a danger to the banks as a danger to the society, whether it is or not, and we have been conditioned so as not to be able to imagine a society not dominated by the wealthy through big banks.

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.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jul 12th, 2009 at 11:38:33 PM EST
[ Parent ]
In a monetary production economy, when the commercial banking system goes crazy, the worst thing that can happen is that nothing is produced and everyone starves ... since in a monetary production economy, money is the institution that is used by going concerns to claim control of productive resources in advance in order for production to proceed, and banks are responsible for the creation of the majority of the money supply.

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.

by BruceMcF (agila61 at netscape dot net) on Mon Jul 13th, 2009 at 12:31:25 AM EST
[ Parent ]
kjr63 raised a fundamental point that was ignored:
i don't really understand what Mr. Bezemer means with "accounting model"

While the question "what is wealth and how is it created" is interesting and important, for the purposes at hand, the issue of the "accounting, or flow of funds model" as opposed to "general equilibrium models widely used in academic and Central Bank analysis" is central to any attempt to resolve the systemic blindness that led us over the cliff.  That, after all, is the point of Dirk J. Bezemer's paper.  It is a continuation of the efforts of William White, the chief economist of the Bank of International Settlements for the fifteen years prior to June, 2008, whose efforts in that regard are described in the article from Der Spiegel posted by Crazy Horse above.  

The credit crisis and ensuing recession may be viewed as a `natural experiment' in the validity of economic models. Those models that failed to foresee something this momentous may need changing in one way or another. And the change is likely to come from those models (if they exist) which did lead their users to anticipate instability. The plan of this paper, therefore, is to document such anticipations, to identify the underlying models, to compare them to models in use by official forecasters and policy makers, and to draw out the implications.

There is an immediate link to accounting, organizations and society. Previewing the results, it will be found that `accounting' (or flow-of-funds) models of the economy are the shared mindset of those analysts who worried about a credit-cum-debt crisis followed by recession, before the policy and academic establishment did. They are `accounting' models in the sense that they represent households', firms' and governments' balance sheets and their interrelations. If society's wealth and debt levels reflected in balance sheets are among the determinants of its growth
sustainability and its financial stability,such models are likely to timely signal threats of instability.

Models that do not - such as the general equilibrium models widely used in academic and Central Bank analysis - are prone to `Type II errors' of false negatives - rejecting the possibility of crisis when in reality it is just months ahead. Moreover, if balance sheets matter to the economy's macro performance, than the development of micro-level accounting rules and practices are integral to understanding broader economic development. This view shows any clear dividing line between `economics' and `accounting' to be artificial, and on the contrary implies a role for an `accounting of economics' research field. Thus this paper aims to encourage accountants to bring their professional expertise to what is traditionally seen as the domain of economists - the assessment of financial stability and forecasting of the business cycle. (My bold.)

Neo-Classical Economics is a house of cards and virtually worthless except as a rhetorical underpinning for the existing, failed system, but the way in which it has been wired into the brains of so many of us is uncanny.  Once again, just when there is the opportunity to see something important and useful as a line of attack, we veer off on an unproductive tangent.  I am equally guilty as I didn't notice until after I had taken the time to read the cited articles.

While it may wound the pride of "Mainstream Economists" to accept that they need supervision by accountants, that wound is far less significant than the wound to the body politic and the entire world economy, especially their own, that their blindness has inflicted.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Jul 14th, 2009 at 08:57:39 PM EST
ARGeezer:
While it may wound the pride of "Mainstream Economists" to accept that they need supervision by accountants, that wound is far less significant than the wound to the body politic and the entire world economy, especially their own, that their blindness has inflicted.
From reading some old economists like Veblen, Keynes and Galbraith, I suspect mainstream economists before WWII actually thought of economic agents in accounting terms. When through the work of Kuznets and others the system of national accounts was developed, it was to bring the accounting models of the firm into macroeconomics.

This has also affected financial economics. Last year I was reading a book on the financial markets by a heterodox fund manager and he complained that, with the rise of mathematical finance, people had stopped learning contract law and accounting and just thought mining historical series of market data was enough to do finance.

There's something decidedly strange about the way mathematization and physics envy has led economics (and financial economics) to abandon the study of the entities and processes that make up the economy. This kind of "accounting"/"flow of funds" models of both economic agents and the economy as a whole seem intuitively appealing from a physics point of view. So you get a decidedly unphysical theoretical construction out of physics envy. And then an "engineering" built out of it, with disastrous results.

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.

by Migeru (migeru at eurotrib dot com) on Wed Jul 15th, 2009 at 04:22:47 AM EST
[ Parent ]
it was to bring the accounting models of the firm into macroeconomics

If only it did!

On the national balance sheet, there is no National Equity, only a National Debt.

The balance sheet shows the debt: but it doesn't show the productive assets it paid for - because the only "productive" assets are - by definition - in the private sector....

The whole concept of National Debt is insane. While individual countries may - through fortune or force - be able to repay their own National Debt, across the entire system, how can National Debts ever be repaid?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jul 15th, 2009 at 05:26:32 AM EST
[ Parent ]
Can all household and firm debts be paid off at once, either?

The peak-to-trough part of the business cycle is an outlier. Carnot would have died laughing.
by Migeru (migeru at eurotrib dot com) on Wed Jul 15th, 2009 at 05:31:01 AM EST
[ Parent ]
Of course not.

Paying off debt destroys money. But in order to repay it, new credit=debt=money has to be created.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jul 15th, 2009 at 05:34:54 AM EST
[ Parent ]
Not at one time ... they can of course be paid off over time, to the extent that net private sector assets consist of public debt.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Jul 16th, 2009 at 03:38:48 PM EST
[ Parent ]


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