The Chimera of Macroeconomics

  In economics, obtaining a unit of utility is called: a gain, a pleasure or a benefit . A gain is sometimes metaphorically called “having a cake.” On the flipside, losing a unit of utility is called: a loss, a pain or a cost . A cost is often called a price , but we hereinafter reserve the latter for the meaning of “market price” in the currency unit.              Two millennia and a half ago, Confucius would have said, “There are yin (-) and yang (+). Thou shalt not con-fuse them but fuse them right.”   Enemies and foes. As the conventional wisdom has it, “We cannot have the cake and eat it, too.” Another: “No pain, no gain.” Still another: There is No Such Thing as a Free Lunch ( Milton Friedman ). The other: “People Face Trade-off” ( Gregory Mankiw ).              Let us take on the metaphor. The cake when eaten renders a special kind of utility, ...

  In the East, there is the popular old saying, “As the raven flies off the tree, some pears fall down to the ground” ( 烏飛梨落 in Korean Chinese ). The saying is sometimes used as a wakeup call against taking correlation for causality; causality has policy implications, but correlation does not.              Suppose the leaving raven causes the pears to fall down. One of our counter-measures would be to put up in the air a signboard telling “Ravens, Please Keep Off.” Then, intelligent and rule-abiding ravens in the community would not come and sit on pear trees any more. We are right and everything goes well. This happy ending is thanks to the right causation.              We are not always fortunate. Even without ravens on the trees, pears may still drop down from time to time. We must suspect that the other time the raven was scared and flew away as pears fel...