Procrustean Art of Backtracking: “Art of Monetary Policy”
Two millennia and a half ago, the great Chinese philosopher teacher Confucius ( 孔夫子 , Kǒngfūzǐ in pinyin ) preached, “Masters shall get the names correct before leading people” ( 正名 , zhengming ). The maxim could not be more relevant to Cambridge Macroeconomics which abounds with such misnomers as liquidity preference, money supply ( M for the outstanding balance of money), fiscal policy and general equilibrium model. To begin, the “fiscal multiplier” is a fatal conceit if not a deadly deception. First, the almost almighty MPC (for marginal propensity to consume) is a data from cross-sectional survey (L -1 , for across households) which is not supposed to be applied over-time changes (T -1 , for over time) of the economy , or the aggregate economic activities all across the nation. Since before the time began, time has never flied but it has been lapsing. Moreover, the assertion of multiplier is...