The Chimera of Macroeconomics

  More than two thousand years later, we still respectfully and respectively refer to Confucius ( 孔夫子 , Kǒng Fūzǐ ) and Aristotle . On one hand, there are yin ( 阴 , negative, -) and yang ( 阳 , positive, +) much like vice (-) and vs virtue (+); on the other hand excessiveness (Confucius) is no less vicious (Aristotle) than shortness ( 过犹 不及 , guòyóubùjí )              Is competition good or bad? The “nominal” answer: Shortness thereof is no more “good” than excessiveness thereof is “bad.” The “real” answer is “Well, it’s opportune.”              Don’t even think about life without competition, at any rate. Without competition, we’ll instantaneously transit from the “short run” (T -1 ) in economics to the “long run” (T 0 ) in macroeconomics. Macroeconomists on the flipside: So many hypotheses are in economics while the only “intellectually honest” theory is i...

  “ Multiplier ” as the crown jewel of “ fiscal policy ” is stillborn of sextuple misconception. There are largely two ways to illustrate the so-claimed “ multiplier effect ,” algebraic and geometric. Either way starts from a “constant” marginal propensity to consume (MPC).              Before all other macroeconomists, Paul Samuelson appears to be right, truthfully or falsely. The “marginal” for each keeps varying while that for the whole economy keeps constant. It’s the fallacy of composition , your Excellency.              Alas, “No macroeconomist is completely right,” to apply a maxim of Eugene Fama from Chicago; “Theories are approximations. Nothing is completely anything.”   Paul Samuelson is no exception falling in the trap of the fallacy he has evangelized against since 1948 to ever.   Misconception 1 . The underpinning idea of MPC (...

  Come to think of it, there in the corner of economics is a hidden cross, utile or useless.   The Cross in Consumer Choice. For the purpose of giving some sense to the so-claimed “price” of x good ( p x ) in the consumer choice model, certain economists put the budget for “all the other goods” on the y axis (e.g. Samuelson and Nordhaus 2010, p.88; Hal Varian 2010, p.114). In this case, the total household income becomes the budget constraint.              Alas, they fall prey of fallacy of composition Paul Samuelson talked about as early as in 1948 ( Economics , p.9). Suppose apples on the x Axis of John Doe’s coordinate, and the weekly income on the Axis of y . Further suppose that the apple sells @ $0.5 and that Doe’s income, or spending budget, for all purposes is $5,000.              Question 1 : How many units of apples could Doe buy per week,...

  When you come across a fork on the road, what are you gonna do? Take it, or so says Yogi Berra . What if a cross on the road? Just take it, stupid, or so would Berra say. What if it’s a Keynesian Cross ? Umm……, please ask someone else, or so would even Yogi say. .              Many innocent students of macroeconomics have hard time understanding the Keynesian Cross. Don’t worry; be happy, “You are not alone.”              Generally speaking, macroeconomics is for the heavens; naturally, it is not only unknowable to each student but also arcane to the rest of us all. Particularly, we’ll never know what the shiny “Keynesian Cross” is like until post mortem . We begin with another lackluster cross.   The Cross in the Market. Probably, most finance-savvy high-school students of modern times are well aware of the demand and supply curves.   ...

  All the celebrated ideas of indifference curves, isoquants and production possibility frontiers are associated directly or indirectly with a “ budget constraint .” The budget may in terms of a good, money or two production factors.              Interestingly, however, the budget constraint is of no use either in the market or in the economy. More specifically, the constraint is irrelevant to the market while redundant, or “nominal” as used in macroeconomics, in the economy.   No Constraint to the Market. To begin, the market is imagined for a particular product traded in a bounded community over a defined period of accounting. Otherwise, we cannot think   of the equilibrium price ( p* ) and the quantity traded ( q* ), much less naming them.              By nature, the product is merely one of indefinitely many goods and services wanted by t...

  For better or for worse, we are born with limited physical and mental capacities vis-à-vis unlimited desires of indefinitely many kinds. Providentially, we have to gratify each desire bit by bit every once in a while. Yes, consumption of goods and services is periodical while we are in Here.              On the other hand, nothing pleasant to consume comes for free. Consequentially, we have to produce utilities, necessary or desirable, directly or indirectly, and that also periodically. In modern times, our life is communal as well as private; we spend some time in the public arena producing some things potentially utile and consuming other actual utilities. Particularly we trade periodically in the public market of consumable products on one hand and creative services on the other.              Now, a clear definition, may it be implicit, of the accountin...

  Economists are sometimes confused between friends and foes. For instance, Gregory Mankiw proposes “the Trade-off between Work and Leisure” ( Principles , Ch.18): Alas, one of the three capitalized words is misplaced. As far as the rest of us understand, “Trade-off” is a choice between two competing benefits or two opposing costs .              Are Work and Leisure competing? Sorry, we don’t think so: With no hesitation at all, we do unanimously vote for “leisure.” See, work is a “pain” while leisure is a “pleasure.”              According again to Gregory Mankiw, incidentally, “The Cost of Something is What You Give up to Get It” (Ch.1). “Something” being beneficial, the Cost must accompany a Benefit. Eureka, a benefit and the cost are friends! On the flipside, we cannot eat the cake and have it too. Eureka, a pleasure at present and another in the future a...