Friday, January 06, 2012

Clarifying My Point on Rowe's Model









  1. Gene: "I think I can express more clearly what is wrong with Rowe's model. At the start, the government increases consumption by borrowing, and people eat 100 more apples."

    Nope. I didn't say that.

    The number of apples produced each period is a constant. And total consumption of apples in any period equals total production in the same period, and must be constant too. But cohort A can eat more apples in its lifetime if A eats some of B's apples when A is old and B is young. Then B gets repaid by eating some of C's apples when B is old and C is young.

  2. OK, when you say this:


    That seemed to be what you were saying. But I will go through the argument again, since I assume that if you don't think that is what you were saying, then that isn't what you were saying!

  3. OK, as I said, I don't think my interpretation of the paragraph I quoted was nuts, but I now see what you meant. I will post my own model in response soon.

  4. @Nick Rowe: So, I must be even less sophisticated than you - which from the little digs and asides in your post, apparently makes me an even better person - but there's some stuff here I just don't get.

    1. At the beginning you say your model economy has no real growth. Later you say, "debt is increasing faster than GDP." But with no real growth, isn't GDP static?

    2. We only had the one bond for 100 apples that keeps getting rolled over, didn't we? So, right at that moment, debt increases faster than GDP - infinitely faster. But after that, we just see the same debt being rolled over several times. So how come, after that initial bond issue, debt:GDP isn't static, since both are flat?

    3. Why does Cohort A want to eat more apples? What good does it do them?