Keynesian Cross, Stillborn of Sextuple Misconception

 

“Multiplier” as the crown jewel of “fiscal policy” is stillborn of sextuple misconception. There are largely two ways to illustrate the so-claimed “multiplier effect,” algebraic and geometric. Either way starts from a “constant” marginal propensity to consume (MPC).

             Before all other macroeconomists, Paul Samuelson appears to be right, truthfully or falsely. The “marginal” for each keeps varying while that for the whole economy keeps constant. It’s the fallacy of composition, your Excellency.

             Alas, “No macroeconomist is completely right,” to apply a maxim of Eugene Fama from Chicago; “Theories are approximations. Nothing is completely anything.”  Paul Samuelson is no exception falling in the trap of the fallacy he has evangelized against since 1948 to ever.

 

Misconception 1. The underpinning idea of MPC (for marginal propensity to consume) is an archetypal case of “fallacy of composition.” The term marginal (unit) is reserved for the individually defined market or factory, where the key concern is how many units of the same. On the contrary, there in the whole economy is a single collective aggregate respectively of GDP (Y) and consumption (C); therefore, the single ratio of C/ Y= APC (for average propensity).

             On the sidewalk of Cambridge, the scenario play is never and nowhere empirical.

Misconception 2. The “preference” of fiscal expenditures from fiscal policy to private expenditures from monetary policy is politically incorrect. The two shall be equal before the law of “spending.”  

             Exogenous to the Capitol Hill or Westminster, money is beyond earmarking, as well.  

Misconception 3. Any “multiplication” of expenditure violates the GAAP (generally accepted accounting principles). Each and all entries to the books shall be once and for all. In the reality, nobody as non-macroeconomist has a way to trace an “entry” thereafter. No one has ever tried, either.

             Lo and behold, the perennial quarrel regarding the size of fiscal multiplier! Not to mention, that’s only amongst professional macroeconomists as researcher or practitioner. .

Misconception 4. Multiplication following the first round of fiscal policy, if any, is due to “so many rounds” of private spending. The adjective “fiscal” before “multiplier” is suspect. 

             Please get the name correct. The private rounds of infinity is by no means comparable the only round of fiscal. 

Misconception 5. The result of “digging a ditch just to refill it,” the signature of all fiscal policies, is precisely the same as “monetary policy” except for the completely-wasted time from digging to refilling.

             You know what? The first sin in efficiency, economy, economics and macroeconomic policy is wasting the time. Again, time is the most fundamental currency of all creatures in Here on Earth.

Sixth and final Misconception. Surefire, there is “dimension” aberration, time (T) vs space (L³). Imaginary variations across multiple scenarios (L^-3) “of convenience” are mistaken for real changes over time of the unitary economy (T^-1).

             The fairy-tale economy would grow or stabilize like a tree across space (± in millimeter if in macroeconomics). On the contrary, the real economy does change over time (± in % PA, metric-free, if in political economy).

 

Truthfully, right or wrong at Cambridge. The time never flies across (L^-1) but it lapses over (T^-1). By providence, the cross, Keynesian or otherwise, is out of our reach until we Cross the River.

             In Here on Earth, in the meantime, Y= AS≡ AD, period. Calling AS “planned or expected Y” and AD “real or executed” must be either magical or otherworldly.

             What in Eternity? Well, have you ever been There? Seen the Time’s Cross? Well, there is Times Square (T²) far exogenous to Cambridge.

Have You Ever Seen The Rain