Tuesday, September 22, 2015

Why practically all macroeconomics is wrong

Because the discipline's two main statistical models are total crap.

GDP and CPI: Broken beyond repair.
All models are wrong, some models are useful. Two highly cited statistical models in economics – Real Gross Domestic Product and the Consumer Price Index – are so broken so as to not be useful. The models are a hodgepodge of dubious assumptions and subjective judgements that have been munged together and massaged until the results simply mirror the intuition of those constructing the model. By trying to be all things, the numbers end up meaning nothing. The GDP statistic tells us neither about well-being, nor about actual productive output of raw goods. For every purpose that GDP may be used, a better measure exists. I’ll start this essay by deconstructing GDP and the CPI, and then I’ll present the alternatives...

Continued at the link. For the most part, the purpose of macroeconomics is to justify the notion that governments can do what individuals, households and businesses cannot. Actually, governments can do two things that everybody else cannot: kill people with impunity and print money without being prosecuted. But no government can do either forever.


Bob Wallace said...

I took two macroeconomics classes and found the whole field worthless.

NZT said...

As if Janet Yellen's voice and face weren't already annoying enough, hearing her drone on about these macro statistics as though they had any validity whatsoever is enough to make any sane person want to burn it all down.

Anonymous said...

GDP universally distorts value-this is easily shown by looking at transactions in the market. For a clearly written insight see the LvMI article:

Visibilium said...

Certainly, the Misesian view finds changes in GDP composition to be more informative--in, say, business cycle theory--than changes in the broad aggregate.

Macroeconomics doesn't become useless until it stops being bigger microeconomics.

dc.sunsets said...

"Governments" don't do anything.

People ruling (or employed by governments) do things. I think the distinction is always important.

That said, GDP is a joke. Since government spending counts dollar-for-dollar, and debt issuance by said government is unaccounted for, we can envision a closed loop where absolutely NOTHING is produced, but rulers borrow and spend, such that GDP is some large figure.

This is too stupid to pass muster in 6th grade, but it's accepted dogma everywhere.