The Chimera of Macroeconomics

  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, ① really moving, ② virtually unmoving, ③ invisibly exemplary and ④ Eternal.   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 , househ...

  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  (T 0 ) . 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 of the most vicious names in economics is “ equilibrium .” As a matter of simple fact, no organism can be in equilibrium until post mortem . That’s the very definition of “organism,” as opposed to “mechanism”: There in an organism indefinitely many parts act, react and interact and that incessantly so as to allow no room for equilibrium.     What the Price Means . Economics is no more “empirical” than physics is. In other words, “science” starts from abstraction also called idealization. For instance, the Newtonian gravity theory never applies as is to the reality where all different things, the observer-cum-researcher included, coexist with the apple and the Earth. Don’t get Sir Newton wrong, either: Owing to Eugene Fama from Chicago, in the first place: “Theories are approximations. Nothing is completely anything.” The great Theory of Gravity is a rough, and very rough in fact, approximation to the reality.         ...

  To be fair, macroeconomics , supposedly “empirical,” was conceived by a certain thought leader who first differentiated the run between “short” and “long.” Afterwards come forward numerous models of “ equilibrium ”  (T 0 )  have.              Alas, 千慮一失 ( qiānlǜyīshī ) ! Master and disciples do take the metaphorical run (L for length in the space dimension) for the real run (T for length in the time dimension). Providentially in Cambridge , the time flies literally like an arrow over the space (L -1 ).              Down (0) with the time dimension (T)!              Ever since in Cambridge, any race when longer than the 50 m dash can be named as “the long run” upon the choice of convenience; 100 m is longer, 400 m is still longer and the like indefinitely. Such naming surely is true a...

  Opening any textbook, we come across the AS-AD model . The framework has the price level ( P ) on the ordinate (the y axis) and the real GDP ( Y= Y N / P , where Y N supposedly for this year’s nominal GDP ) on the abscissa (the axis of x ).              First of all, there is a great technical problem that the abscissa ( Y N / P ) is defined to be a function of ordinate ( P ). Most macroeconomists , not to mention the rest of us, would have difficulty traveling in such an unusual coordinate system.              Second of all, with the stock of money ( M ) and the velocity of money ( V ) assumed to be constant in the model as usual “for the sake of convenience,” the rest of us would have a couldn’t-be-simpler equation P ∙ Y ≡ M ∙ V= k with k assumed constant. The relationship is hyperbolic whether called the “AS curve” or the “AD curve.” That’s fro...