The Chimera of Macroeconomics

  “ Multiplier ” as the crown jewel of “ fiscal policy ” is stillborn of sextuple misconception. There are largely two ways to illustrate the so-claimed “ multiplier effect ,” algebraic and geometric. Either way starts from a “constant” marginal propensity to consume (MPC).              Before all other macroeconomists, Paul Samuelson appears to be right, truthfully or falsely. The “marginal” for each keeps varying while that for the whole economy keeps constant. It’s the fallacy of composition , your Excellency.              Alas, “No macroeconomist is completely right,” to apply a maxim of Eugene Fama from Chicago; “Theories are approximations. Nothing is completely anything.”   Paul Samuelson is no exception falling in the trap of the fallacy he has evangelized against since 1948 to ever.   Misconception 1 . The underpinning idea of MPC (...

  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...

  We need accounting because our time is limited; more specifically, accounting is for promotion of efficiency , namely, value created per hour (U ∙ M ∙ T -1 ). Moreover, the efficiency accounting itself shall be periodic because we need utilities (U ∙ M) as energy of indefinite kinds while the bodily capacity, physical, physiological or psychological, is limited.             Let us take the year ( annum in Latin) as the accounting period in discussing macroeconomic affairs (mostly in U ∙ M ∙ T -1 , or utilities per annum ).    The Cycle of Life. History is irrelevant except for lessons therefrom. We have two economically-relevant genres in life, that is, the current year and the many future years ( ante the River). On one hand, we have to consume things necessary for survival in the current year and prepare for the better-yet-uncertain number of years still to come. On the other hand, our annual income over the...

Naming a numeric multiplier of the unity (1) with two more digits after decimal point, Christina Romer once spoke high of fiscal policy. Then on, Robert Barro did not like her claim among other reasons for “being imprecise by being too precise.” After all, a quotation of number smaller than the “margin of error” is statistically incorrect .              Whoever is more right, “fiscal multiplier” is more like snake oil, misconceived and stillborn.              First, one of many parents of the misconceived is from cross-sectional data (L -1 ) at a given point in time (T 0 as of the month of survey). Exponents and supporters of “multiplier” neglect the simplest fact that the “marginal propensity to consume” is no more applicable to over-time stability (T -1 ) than the balance sheet is combinable to the income statement.         ...