Fallacy of Composition: AS-AD, a Model or Not

 

Spot question: How many kinds of models can we name?

Two snap answers:

1)     Macroeconomists: There are “so many models,” indefinitely many actually.

2)     The rest of us: We can think largely of four kinds, namely, ①really moving, ②virtually unmoving, ③invisibly exemplary and ④Eternal.

 

11) Model or Not

                “Is the AS-AD Model a model?” It’s a great question except for the fact that the answer all depends.  

1)     Macroeconomists in Cambridge shall say, “Are you kidding me?”

2)     The rest of us on the sidewalk, “Well, sort of.”

             First, the demand schedule (T^-1) and the supply schedule are conceivable in the market for each product, an infinitely tiny microcosm out of the greatest macroscopic economy. By conception, ergo, households can demand more apples (+ M∙U∙T^-1) via reducing (- M∙U∙T^-1) demand of oranges and vice versa. On the opposite side, firms supply more or less apples exactly in the same manner.

             Second, there when exogenous to Cambridge is no such thing as aggregate demand (AD) which can be different from aggregate supply (AS). The economy is the individual economy is each economy is the only economy is the sole economy is the whole economy is all the economy of the unique nation. In modern times of the Common Era, we have never been able to collectively consume what we did not aggregately produce.

             Third, what is true for each is not necessarily so. Truthfully saying, AS must always and in every economy be identical to AD. No questions asked! 

             After all, the AS-AD model is a ③model case of fallacy of composition Paul Samuelson in Cambridge talked about (19 times from 1948 to 2010 and on to Eternity). There you go, a model, kind of.

             Plato would say, by the way, “The real economy is not necessarily the same as the nominal screen play” (cf. “Allegory of the Cave”). Aristotle might add, “All the real activities in the former flow over time; all the nominal still pictures of the latter scroll across space.”

             Voila, the economy (T^-1) is not necessarily a movie (L^-1)! The end of "monetary policy" is, by no means, like the film such as “From Here to Eternity” or “River of No Return.”

             Bollywood is no India, may Hollywood be Cambridge.  

         

  ①Really Moving                ②Virtually Unmoving              ④Yes, the “New AD” in Eternity, Sir!

    

Rest in Eternal equilibrium, Marianne Faithfull - "La Motocyclette"