Saturday, December 14, 2019

A Mechanical View of SFC Modeling for Beginners

[Disclaimer: I am writing this article as a method of personally improving my own SFC techniques. (Over the years, I find that new material is understood much quicker and with more comprehension if I first try to put-it-together myself. It's kind of a 'put-it-together first, then read the instructions' approach.)]

The Stock-Flow consistent (SFC) model technique is a method students and thinkers can use to build models by using consistent money flows and stocks. Accounting principals are followed by ensuring that all monetary trades are balanced with an exchange of product and monetary equivalent.

SFC models can be built to display the NIPA sectors and GDP, or they can be built to display other economic events. The focus here will be to build two progressively more detailed SFC models, thereby preparing the reader for the next step of understanding the yet more detailed models found in 'beginning' texts.

Wednesday, December 4, 2019

Two Intuitive Conflicting Models of Money

Money is quite a puzzle to economist. They can't quite figure it out. For sure, it's not exactly the 'stable' medium of exchange that people think of when they consider their 'cash'. Stability is fleeting at best.

'Value stability' is the issue we will consider. We are not going to worry about the size of money or whether it is backed by gold. We will be thinking about paper money as commonly used. (An economist would call it fiat money.) We're going to think about how this money gets value and holds it.

Now, I am not a trained economist. What you will be reading is meant to be intuitive and logical, not quotes from a text book or academic article. The goal is to meld everyday observations about money into a coherent framework.

So what is money? In this post, we are going to look at money from two perspectives, one stable and one unstable. Paradoxically, they both must be true. Coherent logic convinces us the we must have two models of money. The real macro economy must operate with effects from both models contributing to the maelstrom. Our task is to match components with models.