The Chimera of Macroeconomics

  To anyone in  right  mind, savings are never for the purpose of throwing or giving things good and utile away. More specifically, we are “rational” (Gregory Mankiw) and “self-interested” (Adam Smith). Therefore, savings must be for our own benefit , or utility (M∙U in dimensions) of some kind. Why we save.  We save first and foremost because we are presupposed to decline and eventually fade away. In other words, we in earlier cycles of life shall save for the declining up to the eventuality. There are some other reasons as well (see below).   When we save . We can save only in those cycles of life when the hard-earned incomes outweigh demand for consumption. Where we save.  Some macroeconomists seem to think we save “liquidity” for the future under the mattress or somewhere else. That might be true in “Failed Nations” (to this tomorrow). Generally speaking, however, we in ordinary nations do not save inco...

    Chapter 1 The Economy in “Nominal Money”              Suppose John Greedy McScrooge puts one billion dollars under the mattress on the beginning of Mach for the purpose of “saving” (for the future). Originally, the money was earmarked to be spent in the month for widgets. His individual market demand curve for the widget suddenly disappears. There is an interspatial gap of spending between the two scenarios, original vs actual.              A classical economist would account for such a variation in March: ① the aggregate demand curve shifts to the left; ② the market price declines; ③ the real quantity traded, or sold and bought, declines; ④ accordingly, the suppliers in town who happen to be “rational” collectively reduce the “real quantities” of production; ⑤ notwithstanding, the market is cleared in equilibrium; ⑥ everybody including McScrooge i...

  Suppose Robinson Crusoe’s life on the Island.             As usual, he on arrival comes across good news and bad news. The bad news is that he finds himself empty-handed: he owns no physical capital. The good news is that he is all by himself and that he owns bountiful human and natural capital.                  Ironical but true, he is enormously wealthy but extremely poor: the former is a matter of assets (T 0 ), while the later productivity (T -1 ). A lesson: Consumption is not a function of wealth, contrary to the general practice in macroeconomics. To be mathematically correct, before consumption we have to differentiate the wealth variable with the time variable. After all, production to consumption (T -1 ) is to Economics what wealth is to Finance (T 0 ). Don't mix 'em.              L...