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Caveman Economics

Here's a useful explanation of financial markets and the current crisis.


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Josh Reiter wrote:

I guess that was supposed to help me understand economics better, but now I'm just hungry.

ken anthony wrote:

He did not mention the hunters that bought berries with extra meat. Those hunters are doing just fine.

Making the risk visible would allow some of the less risk taking banks to be more competitive and survive a crash. The moral...

Free markets need visibility.

PeterH wrote:

No mention of the squirrels pushing loans of berries to poor hunters. But otherwise a nice description of the mess.

I second Ken's point of markets needing visibility.

Simon Jester wrote:

And the weakness in the cave example is the same one in real life: fractional-reserve banking, which permits the over-extension of loans and excess leverage which has to unwind.

The economy is like a pumpkin: levered too high in the air, it changes its nature and comes down squash.

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About this Entry

This page contains a single entry by Rand Simberg published on October 15, 2008 8:46 AM.

Remembering A Sixties Terrorist was the previous entry in this blog.

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