The Chimera of Macroeconomics

  In various regards on the supply side, we doubt that the law of diminishing returns has anything to do with the economy in general and the economic growth in particular. In this age of softness, moreover, the lion’s share of GDP is taken by services at least in Anglo-America; something like 75% to 80%.                          What’s service got to do with it, the law of diminishing returns? At any rate, some of us may recall the “network effect,” the polar opposite of the famous law, in most every service industries.    Vice Versa. Suppose we are running on the job of cutting cookies. In general, the combination is one hand ( h ) with one cutter ( c ): For the sake of convenience, let us assume that “the capital to labor ratio,” often denoted as k= K/ L , initially to be the unity ( k= 1c/ 1h= 1 in naked ). The conventional wisdom tells us that when the ratio decreases, i.e. Δ k <0 , th...

  Once upon a time in the West, there was a certain “creative destroyer,” as it were. For the sake of convenience we copy the rest of story from Wikipedia .   Richard Arkwright, who patented the technology in 1769, designed a model for the production of cotton thread, which was first used in 1765. The Arkwright water frame was able to spin 96 threads at a time, which was an easier and faster method than ever before. For yet additional convenience, we assume the “thread” is a final good traded in the market. Law of Diminishing Returns. Now suppose a firm registered as Threads Maker & Sons Co. The firm owns 100 Arkwright and hires about 300 laborers in the factory. The firm keeps the number of machines constant over the three fiscal years as “capital budgeting” cycle. The firm experiences the law of diminishing returns as “labor-hours on the job” increase in the given cycle of capital.              Apparen...

  Thinking at the Margin (from Gregory Maniw) . We think of each and every economic issue always stepwise in terms of small-yet-recognizable units. Put it differently, we care about such units because managing unrecognizable matters would be sheer “waste of time.” We the un-famous would never mind, for instance, what the answer is to the problem: 3 micrometers +5 nanoseconds= ? , and the like, effectively everywhere in macroeconomics.              A case in point: Both terms of the equation “at the margin,” M d - (k ∙ P ∙ Y)= ? ; or “What is M d (at this moment) minus ( - ) the k fraction constantly of the nominal GDP ( P ∙ Y hoc   anno ) ?              With the above said, at any rate, we usually “think at the margin” and choose the largest “bang for the buck” of all goods, services, assets, things, matters and so on so forth. Unit of Account . In...

  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...

  On One Side of the Equation Fact 1: Paul Samuelson says (1948), “What is true for each is not necessarily true for all; and                           conversely, what is true for all may be quite false for each individual.” Fact 2: “The marginal thinking” Gregory Mankiw talks about (1998) is applicable to each household,           never to all the households in the economy. Fact 3: A divide is not necessarily a “margin” that Mankiw refers to.   Fact 4: In the national income accounting, there are no “margins” but there are divides instead. The value of each and every marginal dollar or marginal pound is everywhere except for in Cambridge $1.00 or ₤ 1.00 per annum and even per saeculum . Not to mention, such secularity holds true only with no outside invasions, or ceteris paribus . All in all, Marginal Propensity the Famed equals Average Propens...

  In the year 2525 in the two “autonomous” cities of Anglo-America, everywhere endogenous was everything except for the public spending ( G in macroeconomics), the communal investment ( I ), and the MPC ( ΔC/ ΔY ). Once upon a time in the South, on the other Earthly side, there were so many “commonwealths” where everything but the government and fiscal dis-spending ( ----- G ) was endogenous.              To begin, we vary a couple of definitions. First, Y= C+ I + G , all in “nominal.” Second, there are two kinds of constancy, that is, “fixed” yet discretional and everywhere “constant.”   A Downturn and Fiscal Policy . When the GDP ( Y ) was expected to go on as ordinary (in the year 2525), the fiscal outlays ( G ) were constant, or “fixed” as often assumed “for the sake of simplicity.” The GDI ( I in macroeconomics) was “fixed.” The MPC, defined as the cross-scenario gap in consumption vis-à-vis the gap in GDP,...