Saturday, October 8, 2011

More on the mysteries of the IS/LM thingy

Preface my continuing comments:  I am a student here, and trying to see if the continuing discussion at Thoma's site leads me to gestalt.

OK, so I am being led to: On the LM side; when the real goods growth rate is high, relative to the past, then, on the IS side; we are finding investments, and shorting current consumption,  to cover the expansion of future inventory. We are making the projections real.

The economy reaches a consensus about what future production must look like if the growth rate is to continue. The economy gets a target.  Then current consumption and current investment adjust to shift current consumption to the future to utilize the improved production.  The current real interest rates tell us what the consensus future is, relative to recent past.

Its Barro, real Growth model, and Solow growth model, Kling PSST, its a channel encoding problem.

What about today?
The consensus is low real growth in the future, therefore there is less utility in updated investment in production. What is the process by which we find greater future growth? We find new ways to fit new goodies in between large queues of people. On a larger scale we do what the grocery clerk does when the line gets long, she opens another checkout counter. Mammals are very good at herding mammals.

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