Wednesday, April 25, 2012

New Flow Visualizer and Minor Observations on Macroeconomics

In case you missed it, yesterday I introduced a preview of the Macroeconomic Circular Flow Visualizer via a post on EconViz (read the linked post to see more on possible future features and such).

Since I don't always get around to writing the longer ThoughtOfferings posts that linger on my "to do" list, I've been thinking of posting a (still infrequent) mix of bite-sized observations on macroeconomic dynamics. (Hey, the blog is called thought offerings!) Some of them may be inspired by the EconViz visualizers. They are unlikely to be novel, and apologies if I state the obvious too often. But, if there's an occasional observation I can't remember having seen discussed explicitly elsewhere and that I find interesting, then perhaps others will find it interesting too. And if you think I draw incorrect conclusions at any time, please speak up!

Here's one for today on the full autonomy of macroeconomic flow injections. The circular flow visualizer shows in green the three injections -- government spending, investment, and exports.
  • A Post Keynesian revelation is that the injection of business investment has no dependency on the past leakage flow to saving (i.e., on the current quantity of savings). The mainstream believes you need savings to fund investment and also that central bank policy levers play a big role here.
  • A MMT revelation is that the injection of government spending has no dependency on the past leakage flow to taxes (or on the whims of bond markets).
  • Exports are "funded" thanks to foreign countries' circular flows of income, so combining the previous two revelations, the injection of export spending has no dependency on the past leakage to imports. (At least with floating currencies, governments sovereign in their own currencies, etc...) A question I don't know the answer to -- does the mainstream macroeconomics profession in countries with persistent trade surpluses worry about foreigners running out of funds to buy their exports??? (Since they'd believe those foreign economies' other two injections have constraints).

Wednesday, April 11, 2012

EconViz: New Tutorial: How Loans Create Money

Reposting from EconViz Blog:
Here is the first part of a new narrated visual tutorial:

How Bank Loans Create Money — Explained Visually in 3 Minutes

This part covers the very basics, so you're not likely to learn anything if you've followed this topic recently in the blogosphere or used the Macroeconomic Balance Sheet Visualizer... but I hope it might be helpful to those less familiar with the topic. The format also introduces a little more interactivity -- the last page lets you create and repay loans, pay interest, and default on loans. I believe the non-video format has more potential than I've used it for so far -- for example, it could include built in gamification and quizzes.

Part 2 will show the central bank's involvement -- including how reserve requirements, capital ratios, and cash withdrawals do not limit economy-wide lending -- and other related topics that distinguish the Post-Keynesian understanding from the mainstream.

Since the How the Economy Works tutorial turned into a bit of a monster (at half an hour of narrated content plus lots of text-only additional details) I'm going to try making new tutorials as short as I possibly can... 2-5 minutes per tutorial seems to me a good upper limit to attempt, but I am happy to have feedback on this (or anything EconViz related!)