Invalid Assumptions in Macroeconomic Theory
Macroeconomic theory in our country is very much centered on 2 false premises:
Wants are infinite and resources are scarce;
"Consuming" goods and services brings satisfaction.
Macroeconomic theorists have a greater obligation than many think to be meticulous and open minded because an incorrect model on their part can cause a depression in the world that lives beyond charts and graphs that they might only rarely interact with.
To say that wants are infinite is to express a sentiment of an immature creature. Wants are infinite in our world only if resources are infinitesimal. This is extreme and inaccurate. In fact our resources can meet the needs of 6 Billion people (though, because of inequities of distribution, which these assumptions enforce, the needs of many go unmet).
Consuming goods doesn't necessarily bring one happiness, satisfaction, or utility. While this is somewhat addressed through the idea of marginal utility, this concept doesn't have a macroeconomic counterpart, ie marginal utility from aggregate consumption is assumed to never reach zero and certainly never dip into the negative. More consumption is always better it is assumed because, of course, no one would continue consuming when it is not in their best interests to do so. But that is clearly not true. Heroine addicts continue consuming all the time. Imagine what a heroine marginal utility curve would look like... Similarly if we examine the goods and services we "consume" we would be missing the picture if we did not see the addictive parts. For example, mobsters offer protection from themselves. This is inherently addictive and parasitic. What about a less extreme example? Cigarettes. Legal, no crime involved save for false advertising perhaps. What about something a little closer to home for non-smokers? Imagine being told that you will be happier and healthier if you buy a certain product. Imagine being told your parents love you more if they buy you a certain product. Imagine a productivity tool that costs more to produce and maintain than it returns in productivity and has hidden costs. We live in a world more complicated than guns and butter.
And finally, while those assumptions worked in a simple hypothetical world, the application of those models of reality is a creative process and not merely a flawed descriptive one. When we conjecture "wants are infinite" we don't just conjecture, we tell a story; a story people generations from now will hear and may believe as fact. We teach students that they are greedy first, wonder them with mathematics, and as our final nudge leave our posts in cookie-cutter positions for them to fill as researching but uncritical pawns.
Imagine a teaching style where criticism is encouraged. Imagine a teaching style where assumptions are considered and analyzed and a critical essay is worth more than a blog post.
Wants are infinite and resources are scarce;
"Consuming" goods and services brings satisfaction.
Macroeconomic theorists have a greater obligation than many think to be meticulous and open minded because an incorrect model on their part can cause a depression in the world that lives beyond charts and graphs that they might only rarely interact with.
To say that wants are infinite is to express a sentiment of an immature creature. Wants are infinite in our world only if resources are infinitesimal. This is extreme and inaccurate. In fact our resources can meet the needs of 6 Billion people (though, because of inequities of distribution, which these assumptions enforce, the needs of many go unmet).
Consuming goods doesn't necessarily bring one happiness, satisfaction, or utility. While this is somewhat addressed through the idea of marginal utility, this concept doesn't have a macroeconomic counterpart, ie marginal utility from aggregate consumption is assumed to never reach zero and certainly never dip into the negative. More consumption is always better it is assumed because, of course, no one would continue consuming when it is not in their best interests to do so. But that is clearly not true. Heroine addicts continue consuming all the time. Imagine what a heroine marginal utility curve would look like... Similarly if we examine the goods and services we "consume" we would be missing the picture if we did not see the addictive parts. For example, mobsters offer protection from themselves. This is inherently addictive and parasitic. What about a less extreme example? Cigarettes. Legal, no crime involved save for false advertising perhaps. What about something a little closer to home for non-smokers? Imagine being told that you will be happier and healthier if you buy a certain product. Imagine being told your parents love you more if they buy you a certain product. Imagine a productivity tool that costs more to produce and maintain than it returns in productivity and has hidden costs. We live in a world more complicated than guns and butter.
And finally, while those assumptions worked in a simple hypothetical world, the application of those models of reality is a creative process and not merely a flawed descriptive one. When we conjecture "wants are infinite" we don't just conjecture, we tell a story; a story people generations from now will hear and may believe as fact. We teach students that they are greedy first, wonder them with mathematics, and as our final nudge leave our posts in cookie-cutter positions for them to fill as researching but uncritical pawns.
Imagine a teaching style where criticism is encouraged. Imagine a teaching style where assumptions are considered and analyzed and a critical essay is worth more than a blog post.
posted by johnathlon at 5:36 AM
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