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That's the autistic version which doesn't accept the existence of the outside world.

A more realistic model accepts that natural resources drive the rest of the economy. And being finite, when the natural resources run out, the economy simply stops working.

y(t) = f(A(t), C, -L) * (R-(g(t))

(L is negative because it's considered a drain on output.)

In fact y(t) feeds back to C via a financialisation multiplier, because capital/debt is considered (spuriously) as the engine that drives the economy and/or the brake that prevents it working.

Even more accurately, as R-(g(t)) tends to zero, C decreases because extraction costs eat into profit.

Putting it all together you get something like

y(t+1) = f(A(t), k*y(t), -L) * (R-g(t))

A lot of economics seem to obsessed with k's irrational gyrations, when it's the other terms that define historical outcomes over long periods.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 19th, 2010 at 08:08:29 PM EST
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