One of the first casualties of the War on Science, didn't get much press but it died needlessly, is the soft science of Macro-Economics.
The only Economist that still talks about Macro-Economic principles in the media is Paul Krugman.
So here is Macro-Economics 101 in 125 words:
When you spend money, someone else earns that money. PERIOD!
Everyone works for poor people. You don't “work” for the person who pays you, you work for the people who buy the product or service your company provides. PERIOD!
The Level 1 Money supply (Cash on Hand) is fixed to the amount of Global Assets. It can't be increased in the short term.
And,
Economic Activity is the Size of the L1 Money Supply times the speed it transfers hands. PERIOD!
L1 Money Supply can only be grown (in the long run) by two activities, greater exploitation of Natural Resources, or, Technological Innovation. PERIOD!
The conditions for Technological Innovation are well known, an educated workforce and a policy that encourages “infant industries”. PERIOD!
**
Those 125 words cover 90% of what was taught in Macro-Economics 101. The science was killed because it was simple and revealed the liberal bias of reality. Instead the movement is to apply Micro-Economic principles to Macro-Economic problems, and they don't work. Period!
Think of the Economy as a game of poker.
The Macro view of poker is to have fun by having the pot continually shift hands. The Macro objective is to have everyone have fun by alternatively winning and losing hands.
The Micro view (the players objective) is to win.
In the Micro view the player knocks out the other players one by one until they are the only ones playing. Then the game is over.
The economy works the same way, as the pot moves to fewer and fewer hands it slows down and stops being a fun game. If eventually the pot (L1 Money Supply) makes it into one person's hand then, just like the poker game, it's game over.
By applying Micro-Economic strategies to Macro-Economic problems, we make those problems worse.
Larger industries are great for the investors, but bad for the Economy as they slow down the speed money changes hands.
Decreased competition is great for the company, and means higher margins, but bad for the economy as it both slows down the speed money changes hands and discourages technological innovation.
Having a huge “nest egg” is a goal for companies as it ensures their survival in bad times. But bad for the economy as that money is effectively taken out of circulation.
So to all the Micro-Economists that want to apply Micro-Economic solutions to Macro-Economic problems, I say, “Shut-up Stupid, What is good on a small scale is terrible on a large scale. To promote economic activity Macro-Economics offers easy solutions: Put money in the hands of people who will spend it, invest in producing an educated workforce, and foster an economic climate that encourages Infant Industries. Period!”
By Darrell B. Nelson author of I KILLED THE MAN THAT WASN'T THERE
Sunday, April 15, 2012
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1 comment:
Why do the things that make so much obvious sense get discounted so easily?
This continually baffles me. It's like when I was trying to tutor algebra. Once it makes obvious sense, explaining is challenging: can't you see? Isn't it obvious?
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