24 January 2011
Milton, You Left Your Pétard Behind
Macro-economics. Boo! Hoowey!
When I was an undergraduate majoring in economics at the University of Michigan, our economics faculty was in full academic combat with the faculty at the University of Chicago. We were Keynsians; they were Monetarists. Milton Friedman was in his academic prime in Chicago preaching the errors of FDR's fiscal reforms of the New Deal.
Of course, it did not help matters that my macro lecture was at 1:00, right after lunch. The long gone Waterman Gym had been converted to classroom use for the Economics Department. The heating system was steam, so the inside humidity was quite high and, typically Midwestern, so were the thermostat settings. In winter, wearing galoshes, long underwear, parkas and scarves kept me from freezing to death walking to and from campus and between classes. Poor macro-economics could not stimulate me sufficiently to overcome the enveloping warmth of the room, my clothes and my full stomach.
All of these elements conspired to provide me with some very good sleep during class. You know it's a losing battle when you fall asleep while the professor is answering your question. Well, he wanted to be back in Washington anyway as the President's economic advisor, his prior job, and he could have cared less about teaching macro-economics to undergraduates.
I think the academic, macro-economists should confine themselves to theoretical issues and not try to invent and impose an applied field of macro-economics. Unfortunately, it seems that the Federal Reserve Board and its staff, plus members of the Treasury Department are infected with monetary theory and have been trying for the last three decades to apply macro-economic assumptions and theory to policy options of federal fiscal actions that direct our domestic economy.
Macro-economics, which considers national financial debits and credits, never appealed much to me. It was too theoretical, much like the state of political science academics was and remains. To my spongy mind, discussions and theories about the economy's demand graph versus the supply side of the national equation were about the wrong things.
For me, micro-economics deals with the elements of budgeting, measuring and commercial effects on our society from the bottom up. I think that good fiscal policy comes from micro-economic forces that look to macro-economic factors for assistance and trend analysis, but macro-economist conclusions are inappropriate for setting the limits of national fiscal policy.
"Supply Side" economics under President Reagan had its roots in Friedman's ideology and his fertilizer that produced the neo-conservative financial policies of the 1980s until today. Let me just say at this point that I still fail to comprehend global economic forces, especially in contemporary debates about reserve currencies, current accounts and short-term infusions of cash by the IMF. Congress seems to view our economic situation as either fodder for intervention or as fields better left fallow.
The Treasury Department and the Fed Chairman are talking about the options and determinants for legislation and governance using macro-economic theories and Congress has the perspective of the other economic theories that are more relevant to micro-economics. Same terms, words used in testimony and proposals for action, yet very different meanings that vary according to where one sits. No wonder Congress becomes impatient or defiant when the Treasury or the Fed takes actions that make little sense or have little timely effect on the day-to-day issues of our economy and the needs it entails for individuals.
For those of you who want to explore these topics, keep in mind the importance of "Bretton Woods," currency value tied to sterling or gold, and the contentious topic of a establishing an SRC, Single Reserve Currency, derived from the U.S. dollar, the euro, the British pound, and the Chinese yuan. These issues were discussed at the recent G20 meeting in Seoul, without resolution. Small wonder.
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When I was an undergraduate majoring in economics at the University of Michigan, our economics faculty was in full academic combat with the faculty at the University of Chicago. We were Keynsians; they were Monetarists. Milton Friedman was in his academic prime in Chicago preaching the errors of FDR's fiscal reforms of the New Deal.
Of course, it did not help matters that my macro lecture was at 1:00, right after lunch. The long gone Waterman Gym had been converted to classroom use for the Economics Department. The heating system was steam, so the inside humidity was quite high and, typically Midwestern, so were the thermostat settings. In winter, wearing galoshes, long underwear, parkas and scarves kept me from freezing to death walking to and from campus and between classes. Poor macro-economics could not stimulate me sufficiently to overcome the enveloping warmth of the room, my clothes and my full stomach.
All of these elements conspired to provide me with some very good sleep during class. You know it's a losing battle when you fall asleep while the professor is answering your question. Well, he wanted to be back in Washington anyway as the President's economic advisor, his prior job, and he could have cared less about teaching macro-economics to undergraduates.
I think the academic, macro-economists should confine themselves to theoretical issues and not try to invent and impose an applied field of macro-economics. Unfortunately, it seems that the Federal Reserve Board and its staff, plus members of the Treasury Department are infected with monetary theory and have been trying for the last three decades to apply macro-economic assumptions and theory to policy options of federal fiscal actions that direct our domestic economy.
Macro-economics, which considers national financial debits and credits, never appealed much to me. It was too theoretical, much like the state of political science academics was and remains. To my spongy mind, discussions and theories about the economy's demand graph versus the supply side of the national equation were about the wrong things.
For me, micro-economics deals with the elements of budgeting, measuring and commercial effects on our society from the bottom up. I think that good fiscal policy comes from micro-economic forces that look to macro-economic factors for assistance and trend analysis, but macro-economist conclusions are inappropriate for setting the limits of national fiscal policy.
"Supply Side" economics under President Reagan had its roots in Friedman's ideology and his fertilizer that produced the neo-conservative financial policies of the 1980s until today. Let me just say at this point that I still fail to comprehend global economic forces, especially in contemporary debates about reserve currencies, current accounts and short-term infusions of cash by the IMF. Congress seems to view our economic situation as either fodder for intervention or as fields better left fallow.
The Treasury Department and the Fed Chairman are talking about the options and determinants for legislation and governance using macro-economic theories and Congress has the perspective of the other economic theories that are more relevant to micro-economics. Same terms, words used in testimony and proposals for action, yet very different meanings that vary according to where one sits. No wonder Congress becomes impatient or defiant when the Treasury or the Fed takes actions that make little sense or have little timely effect on the day-to-day issues of our economy and the needs it entails for individuals.
For those of you who want to explore these topics, keep in mind the importance of "Bretton Woods," currency value tied to sterling or gold, and the contentious topic of a establishing an SRC, Single Reserve Currency, derived from the U.S. dollar, the euro, the British pound, and the Chinese yuan. These issues were discussed at the recent G20 meeting in Seoul, without resolution. Small wonder.
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