Fallacy of Composition: Macroeconomic Wonders

 

Probably by now, it is surefire clear (明若观火, míngruòguānhuǒ in pinyin) to the rest of us that a price for each is alive and active at the moment of individual exchange. On the contrary, the price and the price level are dead and fixed at the time of accounting for the collective exchanges. 

Paraphrase 1. By saying “moment,” we mean “the shortest run” (T^-1) where no relevant changes take place. To be true, there in Here on Earth is no such thing as a moment (T⁰).

Paraphrase 2. A price is applicable to each exchange and at the "moment" of exchange. In theory of the real marketplace, there from a certain short "moment" of time to the very "long run" can possibly be as many prices as exchanges are.

             Again, the time never flies across (L^-1) but it flows over (T^-1).

Paraphrase 3. There per accounting period are "so many exchanges" but only one aggregate of quantity traded  and that ex post facto. There per period are “so many prices” but a single average price  and that ex post facto. 

Paraphrase 4. Each and every organism will eventually be in equilibrium (T⁰) post crossing the River of no Return to Eternity. In the meantime on Earth, there is nothing Eternal (T⁰, T^? or T^∞) but Earth itself. 

Economic Metaphors. There in the market of each product is the demanding hand to line up from the highest to the lowest the marginal benefits of consumption as “revealed” (never revealing) therein. There on the flipside in the same market is the supplying hand to line up from the lowest to the highest the marginal costs of production as revealed in the same period of accounting.

             There in general is a cross in the market, invisible may it be. We might name it as the “invisible hand’s shake of own hands of demand and supply,” as it were. Somehow, the cross is called “the equilibrium” of price. However, genuine economists rarely refer to “equilibrium” in other places than at the end of some later chapters in the textbook.  

Macroeconomic Wonders. First of all wonders, all the prices in macroeconomics, in the veil of the price level (P) or the interest rate (i, r, either, or both at the individual macroeconomist’s convenience), are named “the determinant” while the quantity “the determined.” Not to mention, that is for certain so-claimed "markets" or “several interacting markets” (to Paul Krugman). Whether regarding the markets or such a speculative naming practice: Believe it or not !

             Second, the moment equals the period. This particular speculation is absolutely false. Notwithstanding, it can still be “right or wrong,” dependent on the school of thought, or a school of "speculation" if you will.

             At any rate, Gregory Mankiw among other macroeconomics defines in a certain Chapter of his super-selling textbook, “GDP is the market value of all final goods and services produced within a country in a given period of time.” Hopefully, he means that all the different prices are to be applied over “a given period” (T^-1); that there can be a single price level (P) to represent the whole period; and that both the prices and the price level are in the US dollar (U¹∙m¹), never in “real quantities” (M¹∙U⁰).               Across so many later Chapters, on the contrary, he speculates on the AS-AD model of the price level (P) vs the “real” GDP (Y);  this is as opposed to his very definition of GDP in “the market value” in the earlier Chapter. Worse, he never refers therein to the time dimension contrarily to his very definition of “in a given period of time.” Lo and behold, a model of the macro-economy with the time completely dismissed  (T⁰)! Probably, the time grows vertically (L^-1) like a tree. 

             Probably, Mankiw is moved  by a “monetary shock” out of blue to be settled down in Cambridge. The rest of us as residents alien could never find a single way out of such a wondrous model until the time of Eternity.  

             Third, anyone when in the IS-LM model could lift up the GDP through jacking the stock of money up (M ↑), or via shooting with an arrow down the interest rate (r↓). In the first place, a moment equals a week equals a month equals a quarter equals a year equals an indefinite time (T^?).

             Bienvenidos a la IS-LM! Time flies like an arrow (L^-1) in the last place (L^-3) of all. ¿A quién le importa?

 All in all, the price of the market is not the same as a price of an exchange. On the sidewalk of Cambridge, Paul Samuelson, a father of macroeconomics, might be wrong proposing the possibility of “fallacy of composition.” Otherwise, with a momentary (T⁰) or absolutely no (naked 0) respect to Apostle, macroeconomists keep committing “so many fallacies of composition,” individually to collectively "without no seams nor needlework" (to Simon & Garfunkle).

                                      Marilyn Monroe In "River Of No Return"

3:25