The Chimera of Macroeconomics

  Macroeconomists are fond of referring to “outside shocks.”              The rest of us would agree that oil shocks , a pandemic , a volcanic eruption , an outbreak of a major war and the like are exogenous to the macro-economy. However, we are not quite sure about a “major breakdown of the financial system” (to Ben Bernanke) or the so-called “ monetary shock ” (ubiquitous in macroeconomics).              In modern times, as opposed to the Mercantilism era, money is generally endogenous; more specifically, “ money supply ” is the business of “the financial system”; or, it’s the matter of monetary base + credit policy !              Truthfully, the financial system is endogenous of the nation; but it is by conception exogenous to the womb of economics. A lining in the cloud: Macroeconomics is by...

  Opening Quizzes . How long is the price, the wage or the interest rate sticky?   <Group 1> The price of a good or a service ( answer ) Grocery ( a week ), wine ( a month ), engine oil ( a quarter ), haircut ( a year ), dental treatment ( three years ), DMV service ( 10 years ) <Group 2> The wage rate Daily bread-earner ( a day ), weekly contractor ( a week ), the factory worker ( a fortnight ), blue-berry picker ( a month ), cabbage-field worker ( a quarter ), cotton-field worker (two quarters) office worker ( a year ), housemaid ( five years ), slave ( lifetime ) <Group 3> The rental rate of a site Hotel room ( a day ), motel room ( a week ), summer camp ( a quarter ), cottage around a working-holiday farm ( a year ), urban apartment ( two years ), office building ( five years ), warehouse (10 years), charted land (99 years) <Group 4> The rental rate of capital stock Coin-car cleaner ( a minute ), washing machine ( 10 minut...

  What is mathematically true can be false in economics. 3)                  Nonentity vs Entity vs Infinity             We can and often do classify all matters in two greatest categories, that is, entity (1) and nonentity (0). We call it a “ binary system ,” which happens to be the computer language . Then on, we can divide the entity into as many sub-entities as we wish with each still existent. On the flipside, we can never create an entity however many nonentities we may amass.              Particularly in mathematics, we sometimes refer to “ infinity .” Come to think of it, as for the entity, infinity is on the other side of nonentity: we can never build up infinity with however many entities, large or small. Right, nonentity is also called “ infinitesimal ” in mathematics; we w...

  “Give me a one-handed Economist. All my economists say 'on ONE hand...', then 'but on the other’” is said to have been said by the former US president Harry S. Truman . The complaint notwithstanding, each and all economists have by creation two hands.              Economists are supposed to work, individually and collectively, on the economy. As such, the real question is, “How many hands does the economy have?” Needless to say, the answer depends on whom we ask the question of. The Liquidity Preferrer . As the case may be, at a certain level of interest rate people “unanimously” prefer the liquidity to all the other assets, physical and financial. This must fair-ly and fairy-ly mean that the velocity of money ( V ) falls down to the earth, or “the absolute zero base” as sometimes called, and that positively out of blue: V= 0 , period.              First ...

  For the sake of convenience, we copy from somewhere else. (Quote) Some macroeconomists claim that households preferably hoard money as a store of value when the interest rate, or the aggregate level of interest rates, is at the zero lower bound (ZLB). Fortunately, in the first place, throughout history all market rates have never at the same time been at or below ZLB, nominal or effective.            Now, let us think about plausibility of ZLB. When households are unusually wary about their incomes in the near future, they may keep all the incremental liquidity from, for instance, the fiscal helicopter drop ( ΔM 1 ). Fortunately in the second place, there is a silver lining: the fiscal or monetary authority would seldom bar the household from selling a part of their asset portfolio for still more liquidity ( ΔM 2 ) when the fiscal drop does not attenuate wariness to a satisfactory extent. As they act upon the unvaried prosp...

For a starter, we quote from two geo-famed macroeconomists.              Paul Samuelson : “ … one single confusion or fallacy, called by logicians the ‘ fallacy of composition . What is true for each is not necessarily true for all; and conversely, what is true for all might be quite false for each individual” ( Economics , 1948 p.9)              Ben Bernanke : “Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation.” (“Deflation: Making Sure ‘It’ Doesn't Happen Here,” a speech in 2002)              Alas, none other than Bernanke, a student of Samuelson, commits the fallacy of composition. He forgets that t...