The Chimera of Macroeconomics

  What are the differences among mathematics, a scenario and the reality? Difference #1. The three are respectively imaginary, virtual and real. Difference #2. We can have anything we want in the first, a plan B in the second, but the Case as is in the third. There can in reality be Case B no more probably than Cleopatra's Nose was shorter.   Difference #3 . The timing and duration are irrelevant in the first, up to the writer in the second, and “everything” in the third.   What is a “parameter”? Oh, that’s a great question. 1)      Mathematics : Such as the z in the following equations. x= f(z) ; y = g(z) → y= h(x) Not to mention, the two variables and one parameter are continuous and freely “variable.” There is no such thing as ex ante vs. ex ante : everything’s simul or simultaneous.   2)      Scenario : The writers can as she pleases have Plan A, Plan B, Plan C, and the like Plans are mutually excl...

  Opening a text book on Principles of Economics, one of the first things we come across is “Demand.” Fact one, demand is for marginal benefit, or utility per unit of the product. Fact two, the value of utility is accounted for in the sovereign currency unit . Fact three, the demand exists with no regard to the Supply and a price. The price would be the “opportunity cost” of grabbing the unit of good or service .                Fact four, “Demand” is periodic (T -1 , or per period) because no household would buy any product once and for good. This is taken for granted and rarely specified in textbooks. Incidentally, each and every one of us has by creation blind spots in our visionary system. Consequently, we in general and macroeconomists in particular often miss the periodicity out, with or without FOMO.              Now let us put “Demand for Money”...

  John M. Keynes illustrates the “liquidity preference” function: M= L(r) (1936, p. 168). Next year, John R. Hicks in “interpretation of Mr. Keynes” comes up with the money demand “equation of Cambridge Quantity”: M= k ∙ P ∙ Y .              To be fair, they like us “demand” money to spend in the near future primarily because “Money is useless until we get rid of it” (Paul Samuelson and William Nordhaus, Economics , 2010, p.458); such getting rid of can never be “now or in the past.” On the other hand, both the interest rate and GDP are already given from outside (read: already determined ).              In mathematics jargon, the interest rate and GDP are a parameter as opposed to a variable. By definition, the parameter is exogenous, while the variable is supposed to be determined in, or “exogenous” of, the market. Wait, a mathematical parameter does not...

  Opening any textbook on Principles of Economics, we see the diagram of market with the price ( p ) on the abscissa and the quantity traded ( q ) on the ordinate. Further: 1)      The demand representing the marginal utility in the currency unit slopes downward. 2)      The supply representing the marginal production cost in the dollar slopes upward. 3)      There surely is a cross near the right end of the diagram. 4)      There we go, the equilibrium price ( p* ) and quantity ( q* ). Easier than eating the cake (and having it too)!              Don’t get it wrong. The framework simply is a metaphor; the metaphor by definition is not reality. In addition, the equilibrium price and the quantity traded can be known ex post .                 The market never really works as per...

  The most basic dimension on earth (L 3 ) is the period of time (T) because the time duration in Here is limited for each and every creature, as opposed to in Eternity across the River (L -1 ) where the time stops lapsing (T 0 ).              The second most critical dimension in Economics is the currency unit defined by the Sovereignty as metric across the commonwealth for the value of utilities (U) of all types and kinds. The sources of utilities are not limited to the apple, the orange, the housing, taking a nap, playing with grandchildren and “leisure,” but way beyond our imagination.              Please do not account for anything in terms of mass (“M”) only, be it called “real quantity.” After all, “real” in macroeconomics may  in reality  mean “surreal,” if not “nominal.” As Adam Smith pinpoints, “It’s the consumption utility!”  ...

  A Joke of Everyone’s Favorite: Dependent on the answer, we can tell you who you are; What is the answer to 1+1 , the easiest arithmetic on earth? 1)      2, period : A schoolchild. 2)      Please Do Not Kid Me : A driver of the Mini 3)      2? : A neurotic, who knows he must say “2” but is in person not really sure why. 4)      5, period : A psychotic   5)      Wishfully 1 : A wedding master 6)      Possibly 1 : A chemist 7)      Possibly anything : A physicist 8)      Explosion or implosion : A nuclear physicist 9)      11 with no question asked : A computer scientist 10) Probably 11 : A “supplier to the market” of the chopstick 11) King sidelined : A Chinese ( 王 , the king) 12) …. 13) > 2 : A synergist to whom, “The total is bigger than the sum of its parts” ...

  In the East, there is the popular old saying, “As the raven flies off the tree, some pears fall down to the ground” ( 烏飛梨落 in Korean Chinese ). The saying is sometimes used as a wakeup call against taking correlation for causality; causality has policy implications, but correlation does not.              Suppose the leaving raven causes the pears to fall down. One of our counter-measures would be to put up in the air a signboard telling “Ravens, Please Keep Off.” Then, intelligent and rule-abiding ravens in the community would not come and sit on pear trees any more. We are right and everything goes well. This happy ending is thanks to the right causation.              We are not always fortunate. Even without ravens on the trees, pears may still drop down from time to time. We must suspect that the other time the raven was scared and flew away as pears fel...

  Theory from Science. Scientific theories are all about causality: A cause results in the effect. If we set the end, we might find a means to have the end obtained. If a self-claimed scientist, abstract or empirical, gets the causality wrong, he shall convincingly confuse innocent citizens, domestic or alien. As such, we may call “reverse causation” the first sin of science. All Correlations are Not Equal . In practice of concurrence , most anything is correlated nearly everything else. In that sense, “correlation” is a matter of degree . I the Meanest do not   only share the same period of time with a little less mean family but also with all different kinds of celebs. Alas, I cannot with the closest related and most honorable parents of mine!              On the contrary, causality of different direction results in a great difference in kind , such as a plan of highest feasibility versus a pipedream. In gener...