Thread by @r0guetrainer, "In DSGE models ... economic system is assumed to behave like a [...]

"In DSGE models ... economic system is assumed to behave like a consumer with fixed preferences over how much they wish to consume ...
This is equivalent to attempting to model the behaviour of a colony of ants by constructing a model of one large ‘average’ ant." - @JoMicheII https://twitter.com/DrCameronMurray/status/1049042739948449793

https://twitter.com/DrCameronMurray/status/1049042739948449793

Meanwhile, in fables involving ants, is there or isn't there a #savingsglut?
https://www.ft.com/content/202ed286-6832-11df-a52f-00144feab49a (Wolf 2010)

The grasshoppers and the ants – a modern fable

Today’s global economy is more complex than Aesop could have imagined

https://www.ft.com/content/202ed286-6832-11df-a52f-00144feab49a

With follow-up article https://www.ft.com/content/6d4dd078-6db7-11df-b5c9-00144feabdc0 (Wolf 2010b)

Great discussions mostly sparked by Klein, Matthew C., and Michael Pettis. 2020. Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace. Illustrated edition. New Haven: Yale University Press. https://yalebooks.yale.edu/book/9780300244175/trade-wars-are-class-wars.

Leading to that most excellent debate in mid-Aug:
Jain Institute. 2020. Geoeconomics and the Balance of Payments. .

@DavidBeckworth helped with:
"Jon Sindreu on Global Financial Flows and the Balance of Trade.” https://www.mercatus.org/bridge/podcasts/08032020/jon-sindreu-global-financial-flows-and-balance-trade.

Jon Sindreu on Global Financial Flows and the Balance of Trade

Jon Sindreu is a reporter for the Wall Street Journal where he covers financial markets and the global transportation industry for the Heard on the Street column. Jon joins David on Macro Musings to

https://www.mercatus.org/bridge/podcasts/08032020/jon-sindreu-global-financial-flows-and-balance-trade

And
“Matthew Klein on Global Trade, Inequality, and International Conflict.” Accessed August 20, 2020b. https://www.mercatus.org/bridge/podcasts/07072020/matthew-klein-global-trade-inequality-and-international-conflict.

Matthew Klein on Global Trade, Inequality, and International Conflict

Matthew Klein is an economics commentator at Barron’s and is the author of a new book with Michael Pettis titled, *Trade Wars are Class Wars: How Rising Inequality Distorts the Global Economy and

https://www.mercatus.org/bridge/podcasts/07072020/matthew-klein-global-trade-inequality-and-international-conflict

Earlier this year:
Mian, Atif R, Ludwig Straub, and Amir Sufi. 2020. “The Saving Glut of the Rich and the Rise in Household Debt.” Working Paper 26941. Working Paper Series. National Bureau of Economic Research. https://doi.org/10.3386/w26941 .

For how this relates to endogenous $, try:
Klein, Matthew. 2020. “What Endogenous Money Means—and Doesn’t Mean—for the Balance of Payments | LinkedIn.” August 13, 2020. https://www.linkedin.com/pulse/what-endogenous-money-meansand-doesnt-meanfor-balance-matthew-klein/.

What Endogenous Money Means—and Doesn’t Mean—for the Balance of Payments

Right at the very end of John Maynard Keynes’s The General Theory of Employment, Interest, and Money is this arresting passage (emphasis mine): War has several causes. Dictators and others such, to...

https://www.linkedin.com/pulse/what-endogenous-money-meansand-doesnt-meanfor-balance-matthew-klein/

However, it's not a #globalsavingsglut, it's a #globalbankingglut!
Shin, Hyun Song. 2011. “Global Savings Glut or Global Banking Glut?” http://VoxEU.Org (blog). December 20, 2011. https://voxeu.org/article/global-savings-glut-or-global-banking-glut.

Global savings glut or global banking glut?

It has become commonplace to assert that current-account imbalances were a key factor in stoking subprime lending in the US. This column says the ‘global banking glut’, i.e. the rise in cross-border

http://VoxEU.Org

@Lprochon tells me that #keynesianeconomics is back in vogue, with it, #accountingidentities. Time to read:
Taylor, Lance. 2020. “‘Savings Glut’ Fables and International Trade Theory: An Autopsy.” Institute for New Economic Thinking (blog). August 2020. https://www.ineteconomics.org/perspectives/blog/savings-glut-fables-and-international-trade-theory-an-autopsy.

“Savings Glut” Fables and International Trade Theory: An Autopsy

A “global saving glut” was invented by Ben Bernanke in 2005 as a label for positive net lending (imports exceeding exports) to the American economy by the rest of the world. However, there is a more...

https://www.ineteconomics.org/perspectives/blog/savings-glut-fables-and-international-trade-theory-an-autopsy

And:
Taylor, Lance. 2020. “Germany and China Have Savings Gluts, the USA Is a Sump: So What?” Institute for New Economic Thinking, August. https://www.ineteconomics.org/research/research-papers/germany-and-china-have-savings-gluts-the-usa-is-a-sump-so-what.

Germany and China Have Savings Gluts, the USA Is a Sump: So What?

An alternative look at the

https://www.ineteconomics.org/research/research-papers/germany-and-china-have-savings-gluts-the-usa-is-a-sump-so-what

In which we learn that Mundell-Fleming IS/LM/BP model is not #stockflowconsistent. Oops. Why should we care?

Why should we care? @michaelxpettis nails that Pettis, Michael. 2015. “Thin Air’s Money Isn’t Created Out of Thin Air.” Carnegie Endowment for International Peace (blog). October 19, 2015. https://carnegieendowment.org/chinafinancialmarkets/61679.

Thin Air’s Money Isn’t Created Out of Thin Air

https://carnegieendowment.org/chinafinancialmarkets/61679

Why should we care that Mundell-Fleming IS/LM/BP model is not #stockflowconsistent? @PMehrling nails it:
Mehrling, Perry. 2012. “Maynard’s Revenge: A Review.” Institute for New Economic Thinking (blog). 2012. https://www.ineteconomics.org/perspectives/blog/maynards-revenge-a-review.

Maynard's Revenge: A Review

The Collapse of Free Market Macroeconomics

https://www.ineteconomics.org/perspectives/blog/maynards-revenge-a-review

As does @NathanTankus in
Tankus, Nathan. n.d. “Where Do Profits Come From?” https://nathantankus.substack.com/p/where-do-profits-come-from.

Where do profits come from?

A Guide to the Kalecki-Levy Profits Equation

https://nathantankus.substack.com/p/where-do-profits-come-from

I'm grateful to @PMehrling & his excellent course https://www.coursera.org/learn/money-banking for introducing me to Hawtrey

Economics of Money and Banking

Offered by Columbia University. The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. The financial crisis of 2007-2009 is a...

https://www.coursera.org/learn/money-banking

Also in Mehrling, Perry. 2011. “The Inherent Instability of Credit.” Institute for New Economic Thinking (blog). March 2011. https://www.ineteconomics.org/perspectives/blog/the-inherent-instability-of-credit.

The Inherent Instability of Credit

What kind of

https://www.ineteconomics.org/perspectives/blog/the-inherent-instability-of-credit

Hawtrey, R. G. (Ralph George). 1919. Currency and Credit. London, New York [etc.] Longmans, Green and co. http://archive.org/details/currencycredit00hawtrich.
is chock full of wisdom: "[he] saw financial instability as the abiding tendency of credit markets" (Merhling)

"Hawtrey was again sharply critical of Keynes’s tendency to argue from definitions rather than from causal relationships."

Glasner, David. 2013. “Keynes and Hawtrey: The General Theory.” Uneasy Money (blog). March 19, 2013. https://uneasymoney.com/2013/03/18/keynes-and-hawtrey-the-general-theory/.

Keynes and Hawtrey: The General Theory

Before pausing for an interlude about the dueling reviews of Hayek and Hawtrey on each other’s works in the February 1932 issue of Economica, I had taken my discussion of the long personal an…

https://uneasymoney.com/2013/03/18/keynes-and-hawtrey-the-general-theory/

Echoed by Pettis https://carnegieendowment.org/chinafinancialmarkets/61679

But did Keynes use #accountingidentities to refute the neoclassical proposition that it is the rate of interest which equilibrates savings and investment?
Glasner, David. 2015. “Keynes and Accounting Identities.” Uneasy Money (blog). October 21, 2015. https://uneasymoney.com/2015/10/20/keynes-and-accounting-identities/.

Keynes and Accounting Identities

In a post earlier this week, Michael Pettis was kind enough to refer to a passage from Ralph Hawtrey’s review of Keynes’s General Theory, which I had quoted in an earlier post, criticizing Keynes’s…

https://uneasymoney.com/2015/10/20/keynes-and-accounting-identities/

Back to #globalfinancialflows & the #balanceoftrade / #balanceofpayments, is it true that:
Pettis, Michael. 2019. “Washington Should Tax Capital Inflows.” Carnegie Endowment for International Peace (blog). August 6, 2019. https://carnegieendowment.org/chinafinancialmarkets/79641?

Washington Should Tax Capital Inflows

https://carnegieendowment.org/chinafinancialmarkets/79641

BIS asks: did global current account imbalances contribute to the GFC?
Borio, Claudio, and Piti Disyatat. 2011. “Global Imbalances and the Financial Crisis: Link or No Link?,” May. https://www.bis.org/publ/work346.htm.

Wrong excess?
"We conjecture that the main contributing factor to the financial crisis was not "excess saving" but the "excess elasticity" of the international monetary and financial system"

Also:
Borio,& Disyatat 2015. “Capital Flows and the Current Account: Taking Financing (More) Seriously” https://www.bis.org/publ/work525.htm.
questions the appropriateness of analytical frameworks that focus on CAs or net capital flows for assessing the pattern of cross-border capital flows

Coming full circle, back to @UWEBristol:
Sissoko, Carolyn 2020. “The Savings Glut or the Death of Schumpeterian Growth.” Synthetic Assets (blog). August 14, 2020. ( @csissoko) https://syntheticassets.wordpress.com/2020/08/14/the-savings-glut-or-the-death-of-schumpeterian-growth/.

The savings glut or the death of Schumpeterian growth

In general, I read Michael Pettis, Brad Setser and Matthew Klein and am amazed by what I learn. They are experts in the best sense of the word: inquisitive, open to argument and very effective at p…

https://syntheticassets.wordpress.com/2020/08/14/the-savings-glut-or-the-death-of-schumpeterian-growth/

Or, back to @martinwolf_ on the role of globalization in the GFC:
Wolf, Martin. 2014. The Shifts and the Shocks: What We’ve Learned – and Have Still to Learn – from the Financial Crisis. Penguin. https://www.penguinrandomhouse.com/books/313193/the-shifts-and-the-shocks-by-martin-wolf/.

The Shifts and the Shocks by Martin Wolf: 9780143127635 | PenguinRandomHouse.com: Books

From the chief economic commentator for the Financial Times—a brilliant tour d’horizon of the new global economy There have been many books that have sought to explain the...

https://www.penguinrandomhouse.com/books/313193/the-shifts-and-the-shocks-by-martin-wolf/

Sissoko, Carolyn. 2014. “On ‘How the World Economy Shifted.’” Synthetic Assets 2014. https://syntheticassets.wordpress.com/2014/11/05/on-how-the-world-economy-shifted/.
"EM countries undervalue their currencies and make it easy for them to run CA surpluses & the uncharacteristic movement of the U.S. business sector into surplus.."

On “How the world economy shifted”

This is a commentary on Chapter 5 of Martin Wolf’s book, The Shifts and the Shocks. Martin Wolf’s explanation of the euro zone crisis, and of the problems created for the currency union…

https://syntheticassets.wordpress.com/2014/11/05/on-how-the-world-economy-shifted/

Also at @UWEBristol the #criticalmacrofinance project @DanielaGabor, @JoMicheII @YannisDafermos et al explain that globalised finance is the dominant force in modern capitalism

@DanielaGabor explains to @DavidBeckworth & us:
Beckworth, David. n.d. “Macro Musings: Daniela Gabor on Financial Globalization, Capital Controls, and the Critical Macrofinance Framework.” https://macromusings.libsyn.com/daniela-gabor-on-financial-globalization-capital-controls-and-the-critical-macrofinance-framework.

Wrong glut? https://twitter.com/DanielaGabor/status/1294164565899587584

https://twitter.com/DanielaGabor/status/1294164565899587584

And yet @martinwolf_ suggests https://www.ft.com/content/f3ee37e0-b086-11ea-a4b6-31f1eedf762e...

Martin Wolf: what trade wars tell us

A new book looks at why global conflicts owe more to divisions within countries than between them

https://www.ft.com/content/f3ee37e0-b086-11ea-a4b6-31f1eedf762e

... that to understand global conflicts owe more to divisions within countries than between them (Pettis & Klein's perspective) goes back to:
https://en.wikipedia.org/wiki/Imperialism_(Hobson)

So much to read!
We have not succeeded in answering all our problems. The answers we have found only serve to raise a whole set of new questions. In some ways we feel we are as confused as ever, but we believe we are confused on a higher level and about more important things
/end

For the excellent discussion of international trade and financial flows back in Aug, thanks to
@JWMason1
@MonaAli_NY_US
@DanielaGabor
@izakaminska
@M_C_Klein
@michaelxpettis
@Brad_Setser
@jonsindreu
@colbyLsmith
@NathanTankus
@adam_tooze.
Happy Labour Day weekend.

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