The Father Of Macroeconomics

June 5th is the birthday of John Maynard Keynes, a brilliant economist whose influential work during the 1930’s changed the course of history. He has had a great deal of influence on generations of economists, including advisers to our current president and congress. It’s too bad he was wrong in virtually all of his innovations.

Keynes is considered the father of macroeconomics, one of the two major divisions of modern mainstream economics. Microeconomics is the description of reality, the study of how people interact and how markets work. Macroeconomics, on the other hand, is the study of how government can efficiently manipulate markets and people.

In the present world, economic reality and truth is largely ignored. The vast body of brilliant intellectuals involved in economics occupy themselves with building and analyzing macro models for government to more easily control the economy. They use their massive mathematical and analytical brainpower to try to develop more clever and complex models to predict the future and show politicians which strings to pull.

It can be clearly seen that the macroeconomists have failed miserably with their interventions to achieve a stable economy and well being for the people. It was a vast experiment over many decades and is a profound and horrible tragedy. All macroeconomists who promoted the interventionist state should be ashamed that they brought this great country to its knees. They should be crawling under a rock in embarrassment. That is not the way of the intellectual, however. The problem, they say, is that they didn’t intervene enough.

All of the macro models and manipulation are built on false premises. The first one is that government intervention can be successful at bringing long term to people in an economy. The second one is that they should intervene, even if success was possible.

Keynes’s conceived that, by measuring and controlling aggregates, such as aggregate demand, total unemployment and gross domestic product, the central planning gurus pulling the strings could make everything coordinate, put everyone to work and advance toward a post scarcity utopia.

The coordination problem is one that central planners have always had to deal with, and the former Soviet Union was one of the clearest examples of the problem and its results. The abolition of voluntary markets and the institution of central planning after the Bolshevik Revolution resulted in mass starvation and deprivation for many millions of people. Lenin was forced by reality to enact the New Economic Program in 1922, the limited reinstitution of markets, to prevent further deaths and possible overthrow of the regime.

Macroeconomics is, in its very essence, the rationalization of central planning. The core fallacy with all of macroeconomics is that data aggregated over a large, diverse area can be used to coordinate the activities in each locality and each transaction between actors in the markets. Each locality in a vast economy has its own peculiarities of weather, geography, demographics, culture and a host of other characteristics. The people each have their own goals, hopes, dreams, advantages and limitations.

It is not possible to impose a uniform solution on 300 million different people over millions of square miles of coastline, mountains, deserts and tundra. The problems and opportunities for small desert communities is vastly different than those of northern metropolitan centers. Macroeconomic policy is necessarily a generic solution to particular problems. The inevitable result is discord, waste and conflict. Because macroeconomics is inherently political, the macro solutions pit one group against another for control of the strings.

This brings us to the second inherent weakness of macroeconomic policy. Even if it was possible to have efficient macro solutions, it is wrong to impose those solutions. A slave owner might become an expert at wringing the most productivity from slaves. That he is able to do so does not mean he should. He should, rather, not enslave them. He should respect their rights and only enter into voluntary trade.

The same applies to national governments. Many people assume that it is a proper role of government to use coercion and confiscation to make people do things that will increase employment, aggregate income, gross domestic product or any other artificial measure. People in a free country, however, are not slaves of the state. Whether a policy will increase GDP or not does not give a politician the right to interfere with the voluntary interaction of market participants.

J.M. Keynes was indeed a brilliant man. Like so many brilliant people today, he was profoundly wrong and arrogant in his wrongness.

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