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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 ]

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