Nature of Competition: All the Silliness of Secular Stagnation

 

Believers in of “ineffective demand” have imagined such otherworldly ideas as “paradox of thrift” to “secular stagnation.”

 

Paradox of thrift. According to Thomas Malthus, we are presupposed to throw whatever unconsumed into the sea sometimes also called “Saltwater.”

             Cómo es eso? With the savings from consumption, the rest of us in the rational mind have so many things to invest in. You know what, savings equal investment when exogenous to macroeconomics or outside of Cambridge. There out there in this world is no such thing as a "paradox of thrift." On the contrary, as Daron Acemoglu and James Robinson world-famously verify what fails nations is a lack of motivation to thriftiness or indolence in saving.

             As we are more than well aware, the cost of the present (C) is the future (I). We as nobody would never ever throw anything into the heavens. The heavens never, if ever, admit “real quantities” but still do admit “nominal words” however so many.

             As long as anyone does not fuse real with nominal, the gross national saving (S for saving in macroeconomics) is identical to the gross domestic investment (I for investment.). Now opening an elementary textbooks, we can so much easily find the accounting identity Y≡ C+ I. The identity does not only logically but also officially rules out the “paradox of thrift.” Ceteris paribus, the higher the S the higher the Y gets.

             Where is the paradox? Where is the beef of macroeconomics?

 

*Secular stagnation. We do not go any further on this conjecture for the sake of saving our time, the ultimate currency of us, macroeconomists or otherwise. Here again, “saving the time” is not to throw it into the sea; we just mean utilizing the saved for our welfare or better being.

             “There ain't no such thing as Secular Stagnation” (TANSTASS).

 

Friend vs foe. The competition in life is more often than not in a group. As such, the first thing in a competition is to tell friends from foes.

             Macroeconomists do not appear so good at that. AD and AS do not exactly compete or join forces, but they are the same in ‘Theory and Practice.” Both are on the same boat with the gross domestic products (Y). Saving (S) and investment (I) are really the same, while “domestic” and “national” are different if ever in name only. Either competes against consumption (C). 

             By definition, the consumer choice model is a macrocosm. Economists, or macroeconomists by nature, claim that the labor supply curve may bend backward on the premise that work and leisure compete. The author of best-selling textbook Gregory Mankiw says, “Probably no trade-off is more obvious and more important in a person’s life than the trade-off between work and leisure” (Principles of Economics, on the Supply of Labor).

             “Obvious” and “important”? Well, sort of.

             To sort out: Trade-off also called face-off is used between foes. In the real world of our humble life, work and leisure are friends. In other words, we can and do enjoy leisure after work, or work after leisure. The two are one after the other. Again, the rest of us have no time to waste in between work and leisure. Most typically, we take a rest after securing something to eat. And, that’s the way it is.

             If we understand the relationship correctly, there would be no such thing as “Trade-off between Work and Leisure,” obviously or otherwise. No such thing as backward-bending labor supply, either.

 

*See e.g. Larry Summers, “Demand Side Secular Stagnation.” American Economic Review: Papers & Proceedings 2015. No. 5 (2015): 60–65. http://dx.doi.org/10.1257/aer.p20151103.