The Chimera of Macroeconomics

    There surely is a production function at each workshop of a factory but not on the level of factory rightly managed; not to mention at the whole firm to the aggregate industry all the way to the macro-economy.              The operation of the workshop is mechanic, but management of the firm is organic: That’s fortunate (+) to some while unfortunate (-) to others. With regard to the production function, some (+) take the organic economy as the economy; while others (-) take a certain mechanic workshop out of indefinitely many nationally for the whole economy.              An interesting question: Would there be such a thing as organic “equation” or “function” as called in mathematics and macroeconomics? As for the rest of us, at least: Well, never in Here on Earth.   We have yet to discover what over There in Eternity.   14) The Produc...

  In various regards on the supply side, we doubt that the law of diminishing returns has anything to do with the economy in general and the economic growth in particular. In this age of softness, moreover, the lion’s share of GDP is taken by services at least in Anglo-America; something like 75% to 80%.                          What’s service got to do with it, the law of diminishing returns? At any rate, some of us may recall the “network effect,” the polar opposite of the famous law, in most every service industries.    Vice Versa. Suppose we are running on the job of cutting cookies. In general, the combination is one hand ( h ) with one cutter ( c ): For the sake of convenience, let us assume that “the capital to labor ratio,” often denoted as k= K/ L , initially to be the unity ( k= 1c/ 1h= 1 in naked ). The conventional wisdom tells us that when the ratio decreases, i.e. Δ k <0 , th...

  Once upon a time in the West, there was a certain “creative destroyer,” as it were. For the sake of convenience we copy the rest of story from Wikipedia .   Richard Arkwright, who patented the technology in 1769, designed a model for the production of cotton thread, which was first used in 1765. The Arkwright water frame was able to spin 96 threads at a time, which was an easier and faster method than ever before. For yet additional convenience, we assume the “thread” is a final good traded in the market. Law of Diminishing Returns. Now suppose a firm registered as Threads Maker & Sons Co. The firm owns 100 Arkwright and hires about 300 laborers in the factory. The firm keeps the number of machines constant over the three fiscal years as “capital budgeting” cycle. The firm experiences the law of diminishing returns as “labor-hours on the job” increase in the given cycle of capital.              Apparen...

  Suppose there in town are five manufacturers of widget: J. Watt & Co. with a machine of steam engine, N. Otto & Co. of internal combustion engine, N. Tesla of electric motor, S. Jobs of CAM, and S. Altman of AI.              Over the quarter as the communal accounting period, all the firms are fixated each with a single unit of machine or “physical capital” as called in economics. The only way to aggrandize the quantity of production is hiring more “labor” as in economics.              The capital cost is “sunk” and does not count as far as the particular quarter is concerned. In other words, there is no such thing as a “fixed cost.” With the machine “invariable,” does the labor cost of production remain constant as the unit of widget multiples from one, two, three and on? Unfortunately No, no, no! Each step forward, the “marginal production cost” in...

The geo-famed Solow growth model is built for Eternity over the River, wittingly or otherwise.              First of all, the so-named growth model does not have the time dimension. As an ABC in macroeconomics, the growth in GDP is defined to be ( Δlog Y)/ Δt . Voila, there in "growth" certainly is the time dimension in the negative (T -1 , T for time dimension). Incidentally, the negative sign enters in the equation for the purpose of performance evaluation only.              Take the marathon vs. the 100 meter dash for example. The length (L 1 in the space dimension) of running of the former is larger than that of the latter by many “orders of magnitude,” so to speak. You know what? The Solow model predicts that always and everywhere, “The winnerrrrrrr is the marathoner!” The running speed is just irrelevant, or more precisely the time duration ( Δt ) does not c...