The Chimera of Macroeconomics

  Macroeconomists are fond of referring to “outside shocks.”              The rest of us would agree that oil shocks , a pandemic , a volcanic eruption , an outbreak of a major war and the like are exogenous to the macro-economy. However, we are not quite sure about a “major breakdown of the financial system” (to Ben Bernanke) or the so-called “ monetary shock ” (ubiquitous in macroeconomics).              In modern times, as opposed to the Mercantilism era, money is generally endogenous; more specifically, “ money supply ” is the business of “the financial system”; or, it’s the matter of monetary base + credit policy !              Truthfully, the financial system is endogenous of the nation; but it is by conception exogenous to the womb of economics. A lining in the cloud: Macroeconomics is by...

  When the base is twisted, the building must be vulnerable to an outside shock. Notwithstanding, the sun will rise next morning and shine all over the ground, with or without the building.     Macroeconomics Fiascos: Resident Aliens 1.      The investors in charge of “ I ” 2.      The central bankers in charge of “ r ” and “ M ” 3.      Secretary of the Treasury in charge of “ G ” in general and “ Δ G ” in particular 4.      The Capitol Hill or the Parliament in charge of “ T ” in general and “ ΔT ” in particular “ Consumption ” 1.      Always and everywhere for “ luxuries ” only; never for Investment of any sense 2.      Absolutely forbidden from multiplying “ Going Fiscal ” 1.      “Consumption without production” is possible as needed, particularly in the short run. (Note: there is a “constant” added to t...

  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...