tag:blogger.com,1999:blog-5908830827135060852.post6619372536004686583..comments2024-03-01T02:40:14.946-05:00Comments on Bond Economics: Macro Musings...Brian Romanchukhttp://www.blogger.com/profile/02699198289421951151noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-5908830827135060852.post-74013580700622553882016-10-07T06:24:23.753-04:002016-10-07T06:24:23.753-04:00Brian: The discussion continues in Nick's blog...Brian: The discussion continues in Nick's blog ("Cheshire Cats.."). I re-posted my latest answer (above) to you there, so that it comes to Nick's attention.Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-25228197536885568882016-10-06T16:09:37.551-04:002016-10-06T16:09:37.551-04:00Very relevant points, Brian. Some of those I haven...Very relevant points, Brian. Some of those I haven't thought about, so thanks!<br /><br />I don't think the actual differences between countries are relevant here. Even if we assumed the overdraft is payable on demand, there is an (inherent) asymmetry here. Let me explain.<br /><br />(I don't like to use Nick's language, but now that you started...) I think we need to adopt the holder's perspective here. The holder of positive money can always find goods (incl. services, incl. labor) to buy, and thus redeem all his "credits" at will. But the holder of negative money is not always able to sell goods, and thus he cannot repay his debt at will (as your BoC crisis experience testifies).<br /><br />There is no symmetry, right? There must always be some notice period, and even if there isn't, nothing guarantees that the repayment/closing of the overdraft doesn't take months, even years after the bank has demanded it (and possibly the bank loses nothing as a consequence -- only gains in interest and fees). We need to look at the actual outcome. Demand is one thing; whether I can comply with the demand or not is wholly another.<br /><br />You said: "the borrower is expected to periodically pay off the balance, but this was managed by the overdraft borrower, and not at the whim of the bank"<br /><br />Sounds a lot like a traditional bank loan, doesn't it?Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-86794957726609597602016-10-06T07:14:50.366-04:002016-10-06T07:14:50.366-04:00If someone chooses an internally consistent accoun...If someone chooses an internally consistent accounting system for a model economy, it is difficult to argue against it. So I cannot say that the situation in Rowe's model is wrong, but one could argue that is unrealistic.<br /><br />For an overdraft to be "negative money," it has to be payable on demand (in order to be symmetric with "positive money." For example, settlement balances at the Bank of Canada can be slightly positive or negative, and banks are expected to clear them up quickly. The convention is that the total balances are close to zero. (This system broke down in the financial crisis; banks left large balances at the BoC.) However, liquidity management for banks at the central bank is quite removed from the experience of nonfinancial firms.<br /><br />In North America, overdrafts might be payable on demand, but it is clear that no one would finance anything using such liabilities -- they are only there for very short-term liquidity management, and when you forget who wrote what cheque in your joint account. (Which is why I have overdraft protection...)<br /><br />In the UK, overdrafts were (are?) a common form of financing for businesses. I do not think they were practically payable on demand, and so I see an interpretation of them as negative money is strained. (Nick Rowe discussed that in comments in an earlier article; the borrower is expected to periodically pay off the balance, but this was managed by the overdraft borrower, and not at the whim of the bank).Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-49898562575553864042016-10-06T06:15:56.904-04:002016-10-06T06:15:56.904-04:00Brian, you might find something of interest in my ...Brian, you might find something of interest in my latest comment to Nick Rowe:<br /><br />http://worthwhile.typepad.com/worthwhile_canadian_initi/2016/09/cheshire-cats-and-new-keynesian-central-banks.html?cid=6a00d83451688169e201b7c89c1b52970b#comment-6a00d83451688169e201b7c89c1b52970b<br /><br />Like you, I'm trying to eliminate "money" from (macro)economics. But I don't agree that using overdrafts will lead to an aggregate money balance of zero, at least no more than "traditional bank loans" do. Do you?Antti Jokinenhttps://www.blogger.com/profile/04778440661520118404noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-38756632353043860112016-09-29T18:28:22.708-04:002016-09-29T18:28:22.708-04:00If you fly regularly, you probably do not want to ...If you fly regularly, you probably do not want to hear my stories about aeronautical engineering. (The pilot model is not germane to money, but rather shows that we can model some aspects of human behaviour as simple models. Although it might sound scary, a sixth-order linear differential equation is pretty simple.)<br /><br />My next book is almost entirely equation free, like my blog articles. (It's essentially a collection of blog articles, some new, some edited reprints.) There are "word equations" like:<br /><br />Assets = liabilities + owner's equity.<br /><br />(The following book is going to be a primer for understanding academic research, and it will feature equations.)Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-84313806512286670092016-09-29T17:38:57.254-04:002016-09-29T17:38:57.254-04:00Well, I have reached the level of my understanding...Well, I have reached the level of my understanding more quickly than I was hoping to. In all honesty, I can't even pretend to know what a sixth-order differential equation is or why it might be germane to money. But as long as they help keep those planes from landing on my house I am all for them! Are there many of them (the differential equations, not the planes) in your book? <br /><br />Yes I agree with you about mathematical models not covering everything. And economics, at least in my understanding, does a really poor job of accounting for things like social status. And for things like altruism, and power, and family, and even ethics. Most of that got lumped in with some kind of utility theory I think. At least back when I was in college a long time ago. But then I was a pretty poor student back then and maybe mistaken, or maybe things have changed since. <br /><br />I will be quiet now and wait to read the book. Hopefully for me there are not too many differential equations in it. But stories about planes are always interesting, just in case you consider adding any.Jerry Brownnoreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-30621055086757296682016-09-29T06:53:06.754-04:002016-09-29T06:53:06.754-04:00Sure, people work to get "money," or pro...Sure, people work to get "money," or probably more accurately, an income. However, they also work to achieve social status. Why does social status not appear as a variable in economic models?<br /><br />We need to draw a firm line between the real world and mathematical models, and accept that mathematical models cannot cover everything.<br /><br />As another analogy, control systems engineers have models of human pilots that are sixth-order differential equations. Nobody thinks that a sixth-order differential equation can describe the human condition as well as the works of Shakespeare, but at the same time, those models are good for identifying the risk of pilot-induced oscillation - a task that no amount of reading Shakespeare will help.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-9107145937814017402016-09-29T00:20:23.526-04:002016-09-29T00:20:23.526-04:00I will have to read your book then. But until the...I will have to read your book then. But until then it seems to me that most people engage in work or produce things or sell things to get money, at least for the most part. And unlike the other things you mention like toilets and legal systems and useful energy, money is created at basically no cost by governments, and at no cost by banks (except for risk). So it is different I think than other goods or services that we end up paying the money for.<br /><br />Like I said earlier, I really don't understand what you mean or what you are arguing so I guess I really need to read more before commenting. Please let me know when the book comes out. <br /><br />And I don't want to be too snarky but let me know if anyone trades a toilet or a lawsuit for the book :)Jerry Brownnoreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-86766440041971942422016-09-28T21:21:14.281-04:002016-09-28T21:21:14.281-04:00It's been awhile, but I am thinking of some co...It's been awhile, but I am thinking of some comments from one of the anonymous commenters.<br /><br />I do not have other articles (yet), since the idea only gelled within the book. (Most of the book are articles are my exasperation with how money is used in economics.)<br /><br />But my example here is as good as any - no money at all within the model, yet it fits economic data. Even of we are going to make the model more complex, there is no a priori reason to believe that the addition of monetary aggregates will help it fit data.<br /><br />Why do we need "money" anyway? What matters is household or business financial assets, which includes government and private debt, and so forth. Pretending that a model needs money because it is used in non-barter economies is strange; there are a lot of other things that developed economies rely upon - energy, running water, legal systems, flush toilets, none of which are taken into account. By privileging "money," economists have to then run around and try to find a real world data series which corresponds to it. We then discover that those real world data series do not act like their imaginary concept, and the monetary aggregates have little predictive power.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-46814537488016718682016-09-28T20:15:29.411-04:002016-09-28T20:15:29.411-04:00Not sure if I am the reader who could not grasp ho...Not sure if I am the reader who could not grasp how it would be possible to eliminate money from economic discussions of monetary economies, but I might as well be because I don't understand what you mean there. In any event, if something is repeated slowly in English often enough in different ways then I have usually found that understanding of the point being made has been possible for me, not that agreement would be reached though. But it is true that some things are beyond me. Is there an older article to read that would explain what you mean by eliminating money from economics? Because my first thought when you say that is that you are trying to discuss a barter type economy and that you want to say money is just a neutral veil over the economy's production and demand for such production. But I am hoping that is not what you mean, although if it is, would be happy to read your argument. Jerry Brownnoreply@blogger.com