Monday, November 21, 2011
A Business Cycle Theory Suitable for a Parallel Universe
I just glanced at Tyler Cowen’s model of a Eurozone downturn and noticed there are a couple of minor elements missing—the trade imbalances between the surplus and deficit countries in the period leading up to the financial crisis, and the financial crisis itself.
That’s right: Cowen explains the current Euromess without any reference to what transpired in 2008. Imagine how much worse it would be if the crisis that actually happened actually happened.
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They ignore it because it's outside their equilibrium models. I have seen it referred to as 'noise'; mere interruptions in the Perfect Capitalist Economy. Scott Sumner says that tight monetary policy simply exacerbated some minor debt fiascos.
It's ridiculous. Economics has instilled a level of dissonance in these people that has put them beyond help.
bloody ridiculous stuff goin on... +followed
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