Velocity Wanted: “Sticky Price,” a Child of “Multiplied” Misconceptions

 

In a sense, the great tragic comedy of macroeconomics starts from “so many” misconceptions to as many stillborn names. Macroeconomists shall heed to the Confucian saying two millennia and a half ago, “Masters get the names correct before trying to teach or lead people” (正名, zhèngmíng).

             If you, for instance, shout “Adrian” while intending to call “Private Ryan,” thou shalt not be able to save him ante Eternity of both. Wake up! 

Factory, Market vs. Economy. By naming, the firm resides on one side of the market facing the household on the other side. “Natural” or otherwise, “sticky wages” never equal to “sticky prices”: the former must also affect the demand curve and subsequently the latter. Don’t forget to remember that the household and the firm are legitimate residents in the community including the cities of Cambridge and affect one another. If you ever forget, you are destined to keep begging from Here to Eternity, “Don’t Forget to Remember Me.”

             By definition in our real life as opposed to Macroeconomics the Empirical, a firm belongs to an industry of an individual product, “the market” is for trade of an individual product, while the economy as the single macrocosm encompassing all industries and markets. Thou shalt not forget that the three of them are different species.

             Please do not tease and annoy the MACRO-economy with MICRO issues of industries or markets. Remember “fallacy of composition”? Or, TINA? And, Laura Norder Thatcher? (Note: “Law and Order” when spoken in the natural level of speed.)

             Well, there is no alternative to Y, M, P, r and i, each per annum; in the first place, the time moves, or “varies” if you will, never and nowhere like a crab. The time has the single mind of lapsing onward! Put it differently, there can be many scenarios to crawl across (L^-1), but only one real economy over the year (T^-1).

Prices vs. Price level. By birth, the price level (P) is the aggregate of indefinitely many prices (p’s) covering so diverse periods (t₁. t₂,… t_n,…t_∞). Therefore, no matter what may happen to individual prices, the price level does keep changing a week, practically the shortest accounting period, after another week all through the long year.

Neither AS nor AD. Opening a textbook of macroeconomics, we come across such a definition of GDP as “the market value of all final goods and services produced within a country in a given period of time” That is GDP, while there is only one way of aggregating “the gross domestic monetary income.” In effect, GDP on the production side is, by naming, always and everywhere the same as the gross monetary income to expend for GDP.

             AS opposed “across so many individual goods and services” in 1936 CE, for instance, there was nothing whatsoever to compare “the collective GDP” in 1936 AD with.

             Please do not fool us with such misnomers as AS, AD, ‘”real GDP,” “sticky wages” and “sticky prices.” If ever, “Fool Me Once.”

             At any rate, thou shalt not forget that there exogenous to thy misconceptions is no such thing as “real gross domestic products,” the first stillborn of all. Even the first grader, if in reality, would not insist that “3” marginal apples and “5” infinitesimal oranges made “8” real products.

GDP and Variation per annum. There is only one “GDP” in each and every year, or per annum. Any variation in “GDP” can never be cross-sectional as in so many models of macroeconomics. Instead, all variations shall be across different years, fiscal or calendar.

             In mathematical notations, ΔY is / Δt (per annum), never and nowhere / Δl (per short inch or  long mile).