The real and financial sides of the economy

When my macroeconomics professors stood in front of the blackboard they drew a graph with two lines – one representing the real or physical side of the economy and the other the financial side. It’s an important distinction but as soon as we get away from the blackboard we tend to analyze things only in terms of money.

What we really need to look at is what is happening in the resource base. There is some evidence that physical resources being depleted or more difficult to extract and that human resources are increasing. So the prices of the first are going up and the prices (wages) of the other are going down. How can there not be economic problems around the world.

 

 

 

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One Response

  1. I agree. By the way, this angle helps better understand, for example, why austerity hurts France but works well for Estonia.

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