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...

  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...

  “Give me a one-handed Economist. All my economists say 'on ONE hand...', then 'but on the other’” is said to have been said by the former US president Harry S. Truman . The complaint notwithstanding, each and all economists have by creation two hands.              Economists are supposed to work, individually and collectively, on the economy. As such, the real question is, “How many hands does the economy have?” Needless to say, the answer depends on whom we ask the question of. The Liquidity Preferrer . As the case may be, at a certain level of interest rate people “unanimously” prefer the liquidity to all the other assets, physical and financial. This must fair-ly and fairy-ly mean that the velocity of money ( V ) falls down to the earth, or “the absolute zero base” as sometimes called, and that positively out of blue: V= 0 , period.              First ...

For a starter, we quote from two geo-famed macroeconomists.              Paul Samuelson : “ … one single confusion or fallacy, called by logicians the ‘ fallacy of composition . What is true for each is not necessarily true for all; and conversely, what is true for all might be quite false for each individual” ( Economics , 1948 p.9)              Ben Bernanke : “Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation.” (“Deflation: Making Sure ‘It’ Doesn't Happen Here,” a speech in 2002)              Alas, none other than Bernanke, a student of Samuelson, commits the fallacy of composition. He forgets that t...