Fallacy of Composition: Hand vs Hands

 

“Give me a one-handed Economist. All my economists say 'on ONE hand...', then 'but on the other’” is said to have been said by the former US president Harry S. Truman. The complaint notwithstanding, each and all economists have by creation two hands.

             Economists are supposed to work, individually and collectively, on the economy. As such, the real question is, “How many hands does the economy have?” Needless to say, the answer depends on whom we ask the question of.

The Liquidity Preferrer. As the case may be, at a certain level of interest rate people “unanimously” prefer the liquidity to all the other assets, physical and financial. This must fair-ly and fairy-ly mean that the velocity of money (V) falls down to the earth, or “the absolute zero base” as sometimes called, and that positively out of blue: V= 0, period.

             First off, the nominal GDP will virtually and really become nil (0) owing to the two-handed “quantity equation” David Hume talked about: M∙V≡ P∙Y= 0 due to V= 0. Voila, the secular stagnation (Y= 0) while all wages and prices are sticky above ZLB (P*> 0). 

             Don’t quarrel, coz we are “in the short run” where each and all are in stuck (T⁰).

The ZL-Beast. Again we quote Ben Bernanke (2002), “…the zero bound on nominal interest rates create a significant problem for those seeking to borrow.” Don’t Worry Be Happy, at any rate, there is the other hand, that is, “these to lend” so as to get rid of “the zero bound” Ben Bernanke talks about.

            Bernanke might well open the textbook (Economics, 1948 by Teacher) to Page Nine, “for the sake of” learning that an individual rate can be at the “zero bound” in the very short run (T⁰) but the collective rate has never been and will never be at “net zero,” whether over the short or long run (T^-1).

The Secular Stag-nationalist. As explained typically by Larry Summers, the producers from time to time insist, persist and consist on keeping aggregately supplying what is not aggregately demanded: “See I Told You So,” the culprit of “ineffective aggregate demand.” On the side walk, the two sides of producers and demanders have only one single mind each. Notwithstanding, the rest of us would not mind thanks the maxim, “The only purpose of production is consumption.”  

The IS Curveist. There are two independent hands, the real saving (S in macroeconomics) and the real investment (I). Sometimes per annum, a part, big or small, of the saved assets is “thrown in the salt water,” as Thomas Malthus talked about (1836). A lining in the cloud as always: Other times of the year, a bunch of fresh assets descends like manna from the heavens. Believe it or not!

The LM Curveist. There are two independent hands, the real money stock and the money stock: the one with the currency unit, the dollar sign for instance, and the other without. More wonderfully, the aggregate households can and do have a different monetary position (L or M^d) than the government dictates (M^s). Don’t Worry Be Happy: Just print, destroy, bury or vary money as you please. In the first place, monetary variables are “in name only,” each and all. Whatever to the nominal!

The Economist. Basically, where there is demand there is supply. Particularly according to Master (君子, jūnzǐ in pinyin): Where there is consumption there is production and vice versa. There in economics are two hands under the observation of two-eyed economists.

The Trader. Where there is a selling party, there is a buying hand. Where the price is sticky, there will be only one party; consequently, trade will fade away if never dies. Guess what next: Sooner than later the rest of us will surely find all different prices around.

The Political Economist. There in the macro-economy are “so many hands” that a single model of “equilibrium,” partial or general, can never be justified a single time even in the short run.

            The Truth is Naked after all: There are indefinitely many parts that act, react and interact, and that ever and forever ante mortem. “The word equilibrium is not in the dictionary of the political economist.”

Bobby McFerrin - Don't Worry Be Happy