The Chimera of Macroeconomics

  We in the physical world have three ultimate kinds of resources, viz. Time (T), space (L 3 , L for Length) and Mass (M). By definition, resources are limited. Limited in what sense? Of course vis-à-vis human wants, or “necessities, conveniences and luxuries” Thomas Malthus talked about (1836).              See we told you so: Economy ( 经济 , jīngjì ) in the meaning of “efficiency” is a necessity in life of us the human. “Economy” in what terms? Of course, Utilities per hour of Time (M ∙ U ∙ T -1 ); whereas Utilities encompass necessities, conveniences and luxuries; whereas the time is our ultimate currency in Here on Earth. Probably, the Malthusian “indolence” would be a type of convenience or another type of luxury; so might “leisure” be. Oh wait, we when in Economy need a fourth dimension of accounting, the Value of utility (U) W.S. Jevons talked about (1957 posthumous).        ...

  What is mathematically true can be false in economics. 3)                  Nonentity vs Entity vs Infinity             We can and often do classify all matters in two greatest categories, that is, entity (1) and nonentity (0). We call it a “ binary system ,” which happens to be the computer language . Then on, we can divide the entity into as many sub-entities as we wish with each still existent. On the flipside, we can never create an entity however many nonentities we may amass.              Particularly in mathematics, we sometimes refer to “ infinity .” Come to think of it, as for the entity, infinity is on the other side of nonentity: we can never build up infinity with however many entities, large or small. Right, nonentity is also called “ infinitesimal ” in mathematics; we w...

  If history is any guide, metaphorical illustrations and thought experiments are useful as a way of illustrating a law or theory to, among others, school children. According to conventional wisdom , on the other hand, children sometimes work as a great teacher to grownups.   A Thought Experiment . Suppose that with the aggregate wage in 1937 stuck to that in 1936 the nominal GDP ( P ∙ Y ) decline by 10% PA, quite conventional in depression, across July 1 st of the respective year. According to the macroeconomic rule of thumb , on the other hand, the one-year run is half the standard length of “ short run .”              All in all, we have seen Δ(P∙Y )= -0.1 ∙ ( P∙Y ) in the undisputed “short run” between the two July 1 st ’s, or per annum so to speak. Enter the “Cambridge Quantity equation.” First of all, thou shalt have Δ M= 0 as before the advent of “ fiscal multiplier .” Second of all, with the “const...

  In a sense, the great tragic comedy of macroeconomics starts from “so many” misconceptions to as many stillborn names. Macroeconomists shall heed to the Confucian saying two millennia and a half ago, “Masters get the names correct before trying to teach or lead people” ( 正名 , zhèngmíng ).              If you, for instance, shout “ Adrian ” while intending to call “ Private Ryan ,” thou shalt not be able to save him ante Eternity of both. Wake up!   Factory, Market vs. Economy . By naming, the firm resides on one side of the market facing the household on the other side. “Natural” or otherwise, “ sticky wages ” never equal to “sticky prices”: the former must also affect the demand curve and subsequently the latter. Don’t forget to remember that the household and the firm are legitimate residents in the community including the cities of Cambridge and affect one another. If you ever forget, you are destined to ke...

  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...

  “In the short run, we are not all dead.” As such, the rest of us must take the velocity of money ( V in macroeconomics ) into account as far as the earthly economy is concerned. If history is any guide, by the way, we may learn more from other people’s failures than from their successes. Before looking for velocity, we quickly review how conveniently it is lost in Cambridge Macroeconomics . Constancy of Velocity. By being assumed to be “constant” as in the “ Cambridge Quantity equation ,” M = k ∙ P ∙ Y , the velocity ( V= 1/ k ) plays no role whatsoever in macroeconomics. More simply, the velocity does not only lose its citizenship in Cambridge but also its identity rendered by the Classical quantity identity, M ∙ V ≡ P ∙ Y . By design of macroeconomists, then on, the economy-wide issues are all about M , P , and Y .              On the other hand, the rest of us are more than well aware that macroeconomics is for ...