Wednesday, October 12, 2011

Economists need a PHD to figure this out

Like a lot of people, my insights draw heavily on Diamond-Dybvig (pdf), one of those papers that just opens your mind to a wider reality. What DD argue is that there is a tension between the needs of individual savers — who want ready access to their funds in case a sudden need arises — and the requirements of productive investment, which requires sustained commitment of resources. Krugman

Another way to say this:
We manage the queue so big borrowers never line up more than two at a time and the ATM machine never has more than two people waiting in line. Its a flow model folks, use channel theory.

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