"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen


"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister


"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont


"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister


"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Tuesday, October 29, 2013

stock-to-flow

Stock-to-flow ratios aren't per se silly or meaningless - return on capital is a ratio of stock to flow, as is labour productivity. But comparing stocks to flows is a dangerous business, because if you don't know what you're doing (as Nelson doesn't), you're always in danger of making the mistake that he has actually made in Chart 1, which is to compare a change in a stock to a flow.

This is a bit of a quibble as the key point here is the one you make - if you're borrowing £2 of "debt" for every £1 of "growth" then you're almost certainly doing very well, because the debt stays at £2 until you pay it back, but the growth gives you a new £1 every year (making the correct stock/flow division would tell you that the UK was getting a 50% return on marginal borrowing, which anyone can see is a pretty fantastic return on investment to be getting. This would still be dumb economics because it's wrongly aggregated, but at least the division would be giving you something at least potentially meaningful).

As I say more of a quibble than anything - I just worried that people might get the impression that comparing a stock with a flow was always wrong, rather than something like starting a sentence with a preposition - probably best avoided but sometimes necessary.

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