What is macroeconomics?

[girl gone mad]

I'm looking forward to the first MMT-based macro textbook. I hope it is widely adopted.

What is macroeconomics?
by Bill Mitchell
http://bilbo.economicoutlook.net/blog/?p=19782

Today I am departing from usual practice. I have decided to use Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. So each Friday I will publish the work I have been doing on it during the previous week in between the other work that I am pursuing. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it. Anyway, this is what I wrote today.

Chapter 1 Introduction

Basic Outline of Chapter

• What is macroeconomics?
  
• Stylised facts of macroeconomics
  
• Hard core hypotheses of the model: macroeconomics must recognize government as by far and away the most important actor in the modern economy.
  
• Macro foundations versus micro foundations
  
• Stocks and flows
  
• Flows: income, consumption, investment, government spending and taxing, imports and exports, saving
  
• Stocks: wealth, financial and real, domestic and external, private and public
  
• Basics of sectoral accounting, relations to stock and flow concepts
  
• Deficits, savings and debts, wealth.
  
• Measuring the economy – essential tools
  
• GDP and alternative measures of output
  
• Measures of inflation
  
• Employment indicators: labour force, employment, unemployment
  
• Measures of growth
  
  1.1 What is macroeconomics?
  
  In macroeconomics we study the aggregate outcomes of economic behaviour. The word Macro is derived from the Greek word makro, which means large and so we take an economy-wide perspective.
  
  Macroeconomics is not concerned with analysing how each individual person, household or business firm behaves or what they produce or earn – that is the terrain of the other major branch of economic analysis, microeconomics. Macroeconomics focuses on a selected few outcomes at the aggregate level and is rightly considered to be the study of employment, output and inflation in an international context. A coherent macroeconomic theory will provide consistent insights into how each of these aggregates are determined and change.
  
  In this regard, there are some key macroeconomics questions that we seek to explore:
  
  1. What factors determines the flow of total output produced in the economy over a given period and its growth over time?
  
  Read more: http://bilbo.economicoutlook.net/blog/?p=19782

[elleng]

1. 'Big Crap.'

[Demeter]

2. Economics as if people didn't matter

[girl gone mad]

3. You should read about the jobs guarantee approach in MMT.

http://www.dailykos.com/story/2012/04/10/1082230/-Dialogues-with-Jamie-Galbraith-and-the-MMT-Job-Guarantee

I don't see any other group of people offering a viable solution to our current economic crisis.

"Let it crash" and then leave people to suffer the consequences of a lengthy deflationary depression is not a good option. We are a wealthy, capable and industrious nation. We can afford to invest in our people. This idea is at the core of MMT.

[RommelDAK]

6. Amen--Job Guarantee is the way to go

But we can't even get Washington to agree to raise the deficit!

By the way, I just reviewed a book for a publisher on the job guarantee. All the big names. There were some excellent chapters and I can't wait for it to come out!

[tclambert]

4. "Macro" means "big." "Ec" means "bad." "Onomics" means "wolf."

Watch out, Little Red Hooded Girl Gone Mad, or the macroeconomics will get you and eat you all up! Just like it has so many millions of other people, and even whole countries.

[bemildred]

5. A secular dogma designed to support the plutocracy. nt

[jeanV]

7. very debatable 'hard core hypothesis'

Hard core hypotheses of the model: macroeconomics must recognize government as by far and away the most important actor in the modern economy.

That sentence is highly debatable (1).
It is further possible to find examples of the contrary (2).

1- debatable, because government is an aggregate. 'consumers' are another aggregate. Can we say in macroeconomics that the government is more important than consumers? Or investors, taken as another aggregate? It could be said the difference is that government is led by one individual, the president. Which becomes less true when we get down to the reality of political life with a president and a Congress of opposite views. So in the end, all that could be said is that government is the most cohesively organized aggregate, and that's still not saying much re the failure to harness Freddy Mac or Fanny Mae for example.

2- Without thinking too hard, I can find four examples where government clearly is NOT the "most important actor in the modern economy. "
- modern day Somalia: powerless government
- modern day Iran: most important actors are the unelected clerics
- modern day Russia: the oligarchs are the economy
- case study on economy/politics: France 1924: government fails vs 200 richest families (=Russia today)

[bemildred]

8. I'm pretty sure the "government is the most important actor" meme is in the context

of the peculiar US debate over the "free market" dogma, i.e. the alternative to government meddling with the economy is the "free market" fixing it automatically, which is, of course, as you say, faith-based babble.

[jeanV]

9. most probably. But it kind of voids the worth of the macroeconomics manual the guy is writing

I had understood the author was trying to make a point about U.S. politics. But it's so blatant and coarse it's self defeating. If you write a general theory book with just one particular example in mind (at one moment in time), it's pretty clear your book is of no great value.

[bemildred]

10. Oh I'm not disagreeing with you.

Just pointing out that theoretically, if this were not all babble, this babble would be the on side of us "liberals", the side of effective government in the public interest and according to the public will.

But being propaganda, the OP is all about how the question is framed, as though the idea that government is the most important player needed to be defended, as though macroeconomics, whatever it is, could exist at all without the services, regulations and protections that government alone can provide.

[jeanV]

11. the answer to your point depends on the angle: practical/theoretical/ethical

as though macroeconomics, whatever it is, could exist at all without the services, regulations and protections that government alone can provide.

In theory, macroeconomics can exist perfectly well without a government. Big words aside, macroeconomics just means aggregates of people selling/spending/investing. You can study macroeconomics of the barter of seashells in a rainforest village whose only government is a shaman predicting the shape of the next cloud based on the wriggling of the sacred tapeworm.

On practical level, you can use macroeconomic theory to work your way in current Russian society where it is very debatable if the central government is 'the most important player'. The informal common interest of the main oligarchs would probably be at least on par, even if it can look less tangible. Think of a cloud of interest as 'the most important player'.

On a moral level, it is not always desirable either that the central government should be 'the most important player'. You certainly would wish checks and balances to enable stopping Hitler in his tracks if you were a German in 1936.

[OrwellwasRight]

12. The point is that as macroeconomics is currently taught at the influential grad schools,

the government doesn't matter. They teach that Keynes was wrong and that the government-provided stimulus during the Great Depression had no effect. To recognize that the government is actually an important player, in these terms, is revolutionary.

[bemildred]

13. Reality is not compelled by our theories, however fascinating we find them.

You cannot have large economies of any sort without the rule of law, and not just any law either, you have to have a legal system that is formed to support large economic activities, property and currency and distributiion and insurance, all of that, large governments and large economies go hand in hand, they are not to be found separately, without government you have chaos and property crime, nobody will invest.

The fact that some governments are criminal activities doesn't mean much, so are many businesses, and the distinction between business and government is often less clear than you seem to assume. Most of our laws these days are written by lobbyists to suit the desires of businesses that pay them to do that. If business controls the government, and it often does, then it's hard to see why one should pick one over the other. It's funny you bring up Hitler, given that his regime was a corporate wet-dream come true.

[GMR Transcription]

15. Macroeconomics-Brief

Hi,
As we are well aware of the fact that economy is studied on a larger basis.That is,on the macro basis.As per my suggestion, macroeconomics is not only confined with analyzing the behavior of an individual person, household or business firm or the products which are owned and consumed by the person concerned. It mainly focuses on the study of gross domestic product, unemployment, inflation,and similar matters. In short, it never looks forward for the functioning of individual companies.

[Hugin]

16. Sounds interesting. n/t