Monday, April 11, 2011

CHAPTER 13: The first thing most students are taught in macroeconomics is how to measure aggregates such as total production, total income, unemployment, and the price level. 

They are not of course taught that aggregation is a flawed economic concept.  For example producing more consumer goods does not have the same economic impact as producing more capital goods.  Producing some types of capital goods does not have the same economic impact as producing other capital goods  Yet both add equally to total production, income, and employment. 

The English economist Keynes said it is demand that creates supply.  The French economist Say said that supply creates demand.  That is a fundamental difference in paradigms.  Keynes approved of borrowing and spending to increase current production. Say encouraged saving and investment to increase productivity in the future.    Do you want more now or more later?  Opportunity cost.

Keynes was a central planner which means organization by hierarchy.  Say thought that leaving the economy alone so it could organize itself spontaneously was the best idea.   In the 1930s classical economics based on Says Law began to be replaced by Keynesian economics.  When I studied economics in college during the early 1960s there were no courses in macroeconomics since the professors had learned their economics before Keynes became so popular. 

The purpose of aggregate statistics is to provide information to the central planners so they can try to manipulate the economy in one direction or the other.  In a natural rights/spontaneous order economic system there would be no central planning and therefore this information would not be worth the cost of obtaining it. In other words the Bureau of Economic Analysis would go out of business. 

However if it's statistics you want go to John Williams website to get an unbiased report. 

Review Question:  What would happen if the government suddenly stopped gathering macroeconomic data?  No price indices.  No unemployment rate.  No GDP numbers. 

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