tag:blogger.com,1999:blog-6476989946886057900.post6812502301481553086..comments2022-11-09T08:34:43.240-08:00Comments on <small> <i> the </i> </small> Mechanical Money <small> <i> blog </i> </small>: Two Intuitive Conflicting Models of MoneyRoger Sparkshttp://www.blogger.com/profile/01734503500078064208noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-6476989946886057900.post-46604774843056194222019-12-07T13:31:30.055-08:002019-12-07T13:31:30.055-08:00Sounds good. I'[ll be looking forward to it if...Sounds good. I'[ll be looking forward to it if you go ahead.<br />edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-74514596833971248082019-12-07T13:04:04.801-08:002019-12-07T13:04:04.801-08:00Ed: A great answer--thanks.
You have probably rea...Ed: A great answer--thanks.<br /><br />You have probably read more econ theory than I. For me, the books are on the shelves--great for studying a passage or theory--but who can we believe? My recourse is to figure things out--mechanically--from what I see and can gather from resources available.<br /><br />My goal is better econ theory. What I have so far is mostly MMT without recommendations. The not-MMT part is mostly due to my insistence on a "chain of accountability" which requires durability.<br /><br />I am just starting a small project on SFC modeling. May even create a beginners post (with emphasis on "beginner) based on a mechanical perspective. Don't hold your breath.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-44536848722141409112019-12-07T11:54:49.591-08:002019-12-07T11:54:49.591-08:00Roger: I believe that money isn't "real&q... Roger: I believe that money isn't "real" simply because it's <b>fiat</b>, ie, there's nothing "real" backing it up, only people's <b>faith</b> (belief) that it's real. You can see from this Trump-era how easy it is to manipulate people's beliefs. How difficult would it be for the monied power structure to invest heavily in the Chinese yuan & then launch a massive publicity campaign aimed at convincing the American public that the dollar's in real trouble, that American industry is on its last legs, that we're headed for hyperinflation & that their only hope is to convert their dollars to yuan <b>now!</b>.<br /><br />The trailing line in my nutshell description of the economy says it all - <i>"All that's important to the economy is maintaining this flow, and with a fiat currency (whose value, by definition, depends only on currency-users perception), there are no limits other than that perception.</i> It's the <b>flow</b> of these tokens we call "dollars" that keeps our economy productive. There's a whole "non-productive" part of our economy, not a part of GDP, that includes banks, stock brokers, money advisors, insurance agents, etc, that I see as one big casino - nothing more than money game-playing.<br /><br />There's a reason their operations aren't included in GDP. There's a reason the economy's Earnings Statement (GDP/GDI) shows no "earnings" (ie, GDP=GDI). It's the <b>flow</b> that's important to maintaining a healthy economy. The accumulated flow (ie, wealth) is, in reality, nothing more than illusion.<br /><br />Just as a side note, from my current viewpoint, it looks like your biggest obstacle was that Econ101 course. As MMT is showing us, everything in those textbooks is <b>wrong</b>. All those theories were derived from an economy of gold-backed money, which haven't been applicable in 50 years. Looking back I'm so thankful I plowed into economics by just reading economists' papers & blogs. If I had gone through the process of being "taught" how the economy works, I'm not at all sure I could have broken through those blinders.edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-73033012544420020262019-12-06T16:34:41.213-08:002019-12-06T16:34:41.213-08:00I am also an engineer but only by degree. I spent ...I am also an engineer but only by degree. I spent my working career farming. I continued my science interest in many ways, but especially in ham radio. I also run an amateur seismic station where quakes are recorded but no actual science.<br /><br />I share many of the economic reservations that you express. My econ effort began with an attempt to reverse engineer the economy, extracting from what I had learned from over 50 years of activity. One year of college econ 101 helped with 50 years back perspectives. <br /><br />Returning to money, the NIPA Y=C+S+T has fascinated me because the S term is so devious (in my opinion). The three SFC models deal with the S component.<br /><br />I'll confess that I also think the three SFC models are less than perfect. I spent considerable thought-time today on the two bank borrowing situations, thinking that they do not flow smoothly one-to-the-other. Still not completely satisfied.<br /><br />The two principals that I am trying to adhere to are "continuity of chain of ownership" and "physically relocatable in a sector". (Of course I am thinking of money, especially when created by the Fed buying something.)<br /><br />Now I think of money (once created) as physical and durable, you have another idea. Why do you think otherwise?Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-46705822227963152282019-12-06T16:30:05.305-08:002019-12-06T16:30:05.305-08:00This comment has been removed by the author.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-28053680534921425862019-12-06T11:45:05.659-08:002019-12-06T11:45:05.659-08:00In rereading my last post, I realized I miswrote &...In rereading my last post, I realized I miswrote "From the NIPA income side: Y=C+I+G+(X-M)".<br />It obviously should have been, From the NIPA income side: Y=C+S+T".edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-40732640091393319192019-12-06T11:35:12.630-08:002019-12-06T11:35:12.630-08:00Roger; Re your last question, I understand your 3 ... Roger; Re your last question, I understand your 3 models but truthfully, I don't buy into them - & in fact, have reservations about the basic SFC/sector-balance approach. In hopes of convincing you that I'm not a complete idiot, I need to follow that up with a long explanation, that I have no emotional expectation that you read or respond to.<br /><br />First, as a retired engineer, I have (I believe healthy) reservations about most opinions that are not backed by accurate definitions & measurements. When I became interested in macroeconomics a couple of years ago & started reading economists papers, I was astounded by the seeming narrowness of vision & ineptness of methods - basic math errors, logical fallacies, unrecognized assumptions. I started feeling that here was a whole body of intellectual endeavor that amounted to no more than trying to determine "how many angels fit on the head of pin".<br /><br />I finally found an anchor in the NIPA accounts - here was an attempt at reproducible measurements & a realistic understanding of double-entry accounting - which led to the nutshell understanding of an economy that I could believe in:<br /><br />"GDP is the measure of our <b>productive</b> economy. GDP is the sum of household, business and government spending (and likewise the income of those sectors equals that spending because all spending is someone else's income). Our economy depends on household spending (2/3 of GDP). That spending is limited by household income (which comes only from those three sectors). Business provides that income to the extent demand (business opportunity) exists, and government provides the rest (by way of bookkeeping entries to household bank accounts). All that's important to the economy is maintaining this flow, and with a fiat currency (whose value, by definition, depends only on currency-users perception), there are no limits other than that perception."<br /><br />I purposefully omitted the "rest-of-world" sector from this descriptor as it seemed to add nothing consequential to the basic understanding (but am aware the "import" measurement is embedded in the other sector expense measurements).<br /><br />This descriptor doesn't answer the many "whys" that economists seek answers to, but it's the clearest & most reliable predictor of economic events that I've found. To me, the NIPA GDP/GDI accounts is the (productive) economy's earnings statement (comparable to that of any business). It establishes the economy's expected income & expenses - & when deviations from those expectations occur, one can drill down into the subsidiary accounts to find the causes of the deviations & assess the options for correcting them.<br /><br />If you got this far, you have some understanding of where I'm coming from. Now to my reservations of the SFC/sector balance approach. I'll use the Sector Balance description from Wikipedia here (but it's the approach most economists use.)<br /><br />From the NIPA expenditure side: Y=C+I+G+(X-M)<br />From the NIPA income side: Y=C+I+G+(X-M)<br />"You then bring the two perspectives together (because they are both just “views” of Y) to write C+S+T = Y = C+S+T=Y=C+I+G+(X-M)".<br />And then the fatal flaw: "You can then drop the C (common on both sides) and you get: S+T=I+G+(X-M)."<br /><br />But no, you cannot drop C. Recognize that C from the expenditure side (call it Ce) is the measure of "Personal compensation expenditures" & C from the income side (call it Ci) is the measure of "Compensation of employees paid" & Ce does not equal Ci & therefore mathematically cannot be dropped from the equation. I found it hard to believe that a relationship with such a basic math error could have such common usage, so have searched for a another interpretation without success. Saying that all people spend everything they're paid makes no sense. Hence, my reservations.edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-23109691571623681702019-12-05T20:17:40.939-08:002019-12-05T20:17:40.939-08:00Well! Thanks for placing this blog on your reading...Well! Thanks for placing this blog on your reading list. The mechanic in me wants to fit all the econ pieces together seamlessly. Money, because it endures in time, seems to need a physical presence.<br /><br />There is an ephemeral element to my 'physical' money. It comes from nothing (via the CB) and vanishes when debts are paid down (CB held debt). However, while money is in existence, it has an owner who carefully watches both deposit and wallet levels (which allows us to trace a chain of ownership).<br /><br />Borrowing from privately held banks is just a little different but still money is created from nothing, will exist for a period, and then back to nothing when the private bank debt is repaid. If my physical money reality is to be honored, private banks lend CB money. Problem is that no one knows if they are lending CB dollars or private bank dollars (They look the same.). The look-a-like feature prompts the CB to use ratios in measuring money supply. The CB knows how much money it has out--always less than the amount of deposits in private banks.<br /><br />Thanks for your comment. I apologize for the long diversion.<br /><br />Do the three SFC models make sense to you?Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-61496158916969680592019-12-05T08:50:43.660-08:002019-12-05T08:50:43.660-08:00Sorry for my erroneous interpretation. I added you...Sorry for my erroneous interpretation. I added your blog to my reading list because of your August post & have not yet read your earlier posts to get a better handle on where you're coming from. Going back & rereading this post, you gave me clear warning in your 5th paragraph - I'm one of that clear minority that doesn't see money as physical. I'll keep your view in mind in reading past & future posts & try to take that into account in my interpretations of what you write.edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-31877013232127182202019-12-04T15:02:30.875-08:002019-12-04T15:02:30.875-08:00That's not the concept that I was trying to co...That's not the concept that I was trying to convey. I was trying to intuitively understand why (for instance) Japan uses so many more money units than the USA to place a monetary price on things. Japan uses about 108 yen for every dollar's worth. Why is that?<br /><br />My intuitive reason is that relative value is basically an entirely arbitrary relationship. Accepted prices (such as you describe) are developed over time as a currency gains acceptance through usage.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6476989946886057900.post-33136038083298467492019-12-04T13:24:28.073-08:002019-12-04T13:24:28.073-08:00"We will intuitively assume that value is pro..."We will intuitively assume that value is proportional to the amount of money available."<br /><br />Only to an academic could this be <b>intuitive</b>. Businesses set prices according to demand with cost as a floor & within a range allowed by competition, (And conscience - a business wishing to stay in business had better put striving to raise quality & lower price at the top of their agenda.) The quantity of money that exists is the last thing on their mind. (Yes, it can have an effect at the extremes. If the money available <b>to their customer set</b> drops enough, the drop in sales of their product(s)/service(s) may make servicing that customer set no longer worth their while. And if that money increases dramatically, they'll first look for additional goods/services they can sell that set, then look at functionality they can add to justify higher pricing & then raise prices only if they have no competition (& most <b>businesspeople</b> won't even then).<br />edzimmerhttps://www.blogger.com/profile/02585904152433355121noreply@blogger.com