One that delivers the promise of a better, more sustainable way of living in the UK that will help people in this country fulfil their potential – which I believe to be the goal of macro economic policy.
Macro\’s all about aggregate demand, the short term stuff. It\’s Micro which is about prices, taxes, structures.
Trying to use macro to get to a better, more sustainable way of living instead of micro is like using the hammer to put in the screw.
But then Ritchie doesn\’t like micro because most of its findings are in direct contradiction to his prejudices. And as with the man whose hammer makes everything look like a nail, Mr. Murphy is going to try and change the prices, taxes, structures and incentives of the economy without actually studying anything about the effects of prices, taxes, structures and incentives in the economy.
Both Caroline Lucas and Chuka Umunna use this man as an advisor you know……
er, no. short-run macro is about the short-run. Long-run macro, isn’t.
here you go look – studying the effects of prices, taxes, structures and incentives on the economy:
http://obs.rc.fas.harvard.edu/chetty/denmark_adjcost.pdf
that is an example of macroeconomics nowadays
I’m seriously considering writing a book called “101 Uses For A Dead Puritan”.
Macro-economics. That’s that “pyramid building was good for the Egyptian economy” theory isn’t it? The one that proves that the more you waste, the more you have? That one?
Ian B
no.
So, it’s not that theory that aggregates output into something called Aggregate Output? It’s another one?
/confused
Ian B
macroeconomics means studying economy at the macro level, so yes it means thinking about aggregates, but mainstream macro is generally accused to legitimising right-wing ‘do nothing’ policy, so nothing remotely like “the more you waste the more you have”.
I think what you’re thinking of is a particular brand of Keynsianism
n.b. even such Keynesian of that ilk would only suggest building pyramids during recession, not long-run.
I spend £1bn of public funds on building a pyramid. I do this to stimulate the building sector and other associated sectors.
Compiling my national accounts, I add £1bn to GDP, which I consider to be the value of my pyramid.
That’s what we do, is it not? I mean, not just “a particular brand of Keynesianism”, but what macro-economists, and governments right now do. Yes?
Ian B
here’s how a macro economist might approach that scenario. I assume you use pyramids as an example of something that is sod all use to anyone.
assume government spends £1bn on pyramid. assume taxes, borrowing or money printing has to go up to pay for it, and try to figure out the consequences of that. Assume workers, who could be doing something more useful instead, have to build it, assume capital that could be employed doing something else, has to be used too. Think about what that’ll do to prices. Try to trace through all the consequences of the decision to build pyramid. A fully specified structural macroeconomic model is based on utility, so complete the model by including fact that pyramids are of no utility to anyone. Likely conclusion: spending £1bn on building pyramids leaves us worse off. The analysis should vary depending on whether there happens to be lots of unemployed and interest rates at the zero lower bound.
If you aren’t talking about macroeconmics and what macro economists do, you might be talking about how GDP data is estimated. It is true that because government output is not priced by the market, statisticians tend to include it at cost. So building the pyramid might cause reported GDP to rise, but it might not because of aforementioned use of scarce resources, effects of higher taxes etc. hurting non-pyramid related activity, and also any decent economist would be questioning whether pyramid construction ought to be included at cost in GDP.
Note that there are also many problems to do with using market prices to calculated GDP. GDP is a very imperfect measure of what we really want to know, which is actually aggregate utility (the true measure of real output) but I shan’t try to convince you of that.
nb a certain brand of keynesianism might argue that in a recession building pyramids might have enough positive knock on affects and few enough costs (if you can hire unemployed workers and the government can borrow without having to raise interest rates) to make the net effect benign (particularly if you place some value on reducing unemployment for its own sake)
Luis, if you do that tracing all the consequences thing, you’re doing microeconomics, not macroeconomics, because you’re now looking at specific transactions and trades. It would indeed conclude (presuming the pyramid has no market value) that there was a net loss.
Macroeconomics can’t do that analysis because it eschews the study of individual (“micro”) transactions in favour of the studying of aggregates (“spending”, “investment” and so on). It is by definition incapable of distinguishing particular economic events because that is by definition micro.
And yes, it is Keynesian of course, or post-Keynesian. Or, perhaps meta-Keynesian. Because Keynes invented the theory that there is a macro and a micro, and that one can do macro without considering the micro. Of course there are other macro theories (e.g. Chicago) but all are predicated on the Keynesian arithmetic-with-aggregate-statistics model because that is what macro is.
In our case, the pyramid is subsumed into an aggregate statistic called “public spending” or the like. In a macro analysis, you cannot analyse the particular merits of the pyramid, because to do so would be microeconomic analysis.
well, you’re right that the way a macro economist would approach the above is to model it as a £1bn increase to public spending, on an item that does not enter into anybody’s utility function or act as a productive capital good, and then try to trace through the effects as I described. You’d need to model it as a marginal increase because obviously the effects would vary depending on initial tax and spending levels.
other than that, you are quite mistaken. I don’t know how to convince you without arguing from authority – shall I send you some links to some macro papers, or perhaps refer you to the syllabus of some macro courses?
It seems Ritchie is bringing out the big guns on the question of Greek defaults, and unable to control his anger, justifies being a prick because ‘Jesus was an angry man’ !
http://www.taxresearch.org.uk/Blog/2011/05/24/osborne-said-he-was-going-to-reduce-deficit-and-delivers-biggest-ever-april-borrowings/
How could we all be so stupid as to not realise that if all Governments just printed more money, we wouldn’t be in this shit.
And then just to hammer home his ‘victory’ he brings out the religious justification to show than Jesus would even ask for his money back, or even collateral, either.
Genius