"Is Macroeconomics Believable?"

["John Gelles" <jjgelles@xxxxxxxx>]

	Comments refer to subject article in Spring 1988 issue
	of The Independent Review, an American conservative
	(Euro neoliberal) journal of political economy.  The article
	is by Ben W. Bolch, Distinguished Professor of Economics
	at Rhodes College, Tennessee. The Bolch article is at
	http://www.independent.org/tii/media/pdf/TIR24_bolch.pdf

	John Legge remarked on the piece: "The first third is an ad
	hominem attack on Keynes; the next third is a denunciation
	of the use of statistics and aggregates; and the final third is the
	claim that ... economic growth data ... 'prove' that a particular
	set of policies, viz. extreme laissez faire, are better than all
	possible alternatives.  [It includes] ... 'depressions are good
	for you' propaganda, a theory that, ... we ... [may] see
	tested on a global scale.

	John Legge's opinion is more severe than mine.

	The article is so complete and so pertinent to our education
	over many years at PKT that I will devote several messages
	to it.  The style will be to tell what "Is Macro. Believable?",
	(IMB), says.  And then to comment on it.

	IMB:
	                [Section  I  (Untitled) Introduction]
	As an academic discipline, macroeconomics, (the study of
	aggregate performance of nations, regions and the world)
	is the concern of central banks, national treasuries, heads
	of state. Yet after initial success, post World War II, we
	are called on to prove that it has a believable core. In other
	words, we must prove it makes sense to try to influence
	total production and employment rather than focus on each
	and every firm and person contributing to such totals. [Par 1]

	Comment:
	Admittedly, totals and averages hide variations in reported
	results.  Disaggregated data may be necessary to certain kinds
	of understanding.  The old joke -- your head's in the oven and
	your feet are on ice -- but your average temperature is fine.
	Yet we know totals and averages have a place.  Totals
	especially are helpful if you are trying to make them higher
	or lower.

	IMB:
	           [Section II]  The Individual and the Aggregate

	Keynes is the father of macroeconomics.  His formal education
	in economics was spare but it was under the tutelage of Alfred
	Marshall, the father of what is taught as microeconoomics
	today.  Marshall believed in frugality, rationality and honor, and
	he, like Adam Smith, saw the free-market system as the way
	to encourage these virtues. [Par 2]

	Comment:
	A decent job, a clean environment, and freedom would seem to
	necessary additions to frugality, rationality and honor.  And a
	system to encourage these outcomes and virtues would have to
	include laws as well as markets.

	IMB:
	Keynes opposed the view that economic systems are best left
	to self-regulation. [Par 3]

	Comment:
	We must all oppose this view.  We do not imply that endless
	regulation is good.  Some regulation is good.  Some reliance on
	discovered self-correcting mechanisms is also good.  But no
	one may stand aside, morally, while economic systems impose
	avoidable hurt to people as individuals or in large numbers.
	Corrective action is more often required than not.  Self-
	correcting mechanisms are not easily designed or evolved.

	IMB:
	Mainstream economics today is a mixture of Marshall's micro-
	and Keynes macro- economics.  Micro lends itself to market
	freedom.  Macro lends itself to government control.  The two
	together would require a balance that advocates for each side
	may find it difficult to agree on. [Par. 4]

	Comment:
	It is hard to imagine self-regulation as the path to a balanced
	design that includes government control and market freedom
	working in tandem like a team of horses.  But it is not hard
	to imagine a human design for economic balance similar to the
	design we employ for political balance to provide freedom
	and order working in tandem.

	
	This PKT message ends here in the beginning paragraphs of the
	second section of the article.  There are six sections, as
	follows:
		Section  I    Intro (untitled)                     Par 1
		Section II    Individual & Aggregate       Pars 2-15
		Section III   Long Run and Short           Pars 16-22
		Section IV   Does It Predict Well?         Pars 23-32
		Section V    Macroeconomic Policy       Pars 33-37
		Section VI   Return to Classical Econ?   Pars 38-40

	Bolch, in the end, wants both freedom and growth.  He
	also wants virtue.  He is a afraid to monetize too much debt.

	If you are not too bored with this beginning, hang on till the
	end. The article is very short, yet packed with what we talk
	about.  All we amateurs can read and enjoy it -- and
	comment on it here.

	He writes clearly.  Here, as a teaser, is the way he describes
	how to finance essential needs today at the risk of some
	future inflation:

	          America can finance necessary spending
	"by expanding the stock of 'outside' money (currency plus
	commercial bank reserves).  The Fed can simply purchase
	government debt, rebate the interest to the Treasury, and
	expand the government's short term command over
	resources."

	Of course, that is the way we paid for the war against
	fascism and could pay for a war now against decay and
	demoralization.  Bloch may not think it's the best way.
	But it's nice to see him explain it so well.

	John Gelles
                            http://www.rain.org/~jjgelles/
       [See the Individual Estate Account (IEA)] at URL above.]