Friday, July 26, 2013

GDP vs. EE, Macro Policy Edition

Macro is hard. Remaining circumspect while you're doing it is harder yet. The peer-reviewed theoretical literature (or at least the papers I'm familiar with) seems eerily divorced from the agents under scrutiny, and the empirical work is a glass crowbar: nice to look at, but when you try to use it to move stuff around, it has a tendency to break. Perhaps more frustrating for regular folks, the public debate is esoteric, weirdly partisan, and boring as all get-out (with the occasional exception for rap videos).

Macro policy itself is not an exchange in the same sense as buying a taco or swapping credit default risk. Instead, it influences the environment in which these exchanges are made. Stimulus programs are passed under the justification that the government spending will ignite consumer spending, taking some slack out of idle resources. FOMC transactions put more current assets into circulation, lowering interest rates, which reduces borrowing costs, which I suppose is meant to make investment decisions more attractive? I'm not entirely clear on this point. Firms that make decisions underpinned by cheap paper strike me as imprudent, much the same way that families buying more housing than they can reasonably afford are imprudent. Also, TANSTAAFL: cheap credit is an intertemporal transfer.

So that's some of the baggage I bring with me. I'm a phantomweight in the macro arena though, scarcely in the audience let alone in the debate itself. I have no dog in the fight, so to speak. I am interested in marginal euvoluntary exchange though. And I'm interested in pedestrian intuitions. I assume that my regular reader(s) are too, else you wouldn't waste your time by reading me.

So how about it then? Let's assume that there is a chunk of commerce that does occur because and only because of government spending. The DoT plops down $26B on road construction that wouldn't have otherwise happened. Or the DoE pushes $15B into "Efficiency and Renewable Energy, Recovery," funding that otherwise would have sat idle, rusting in a field somewhere while discouraged workers' human capital depreciates on the couch watching daytime TV. Let's just assume for the sake of argument that proponents are right and the Broken Window Fallacy does not apply with fallow resources. Are these exchanges euvoluntary?

Maybe this question is misguided. Maybe the right answer is "it depends." How would you approach the question? What's the role of time, of discovery, of risk, of opportunity? When do cyclical effects become structural? When does the short term become the long term? Most importantly, how are ordinary citizens supposed to keep track of these questions when they're alienated from the discussion by dint of education, inept reporting, and strident disagreement between even the top echelon experts in the subject?

When the rule of law is working well, it gives regular folks a bit of certainty in a chaotic world. Rules closely observed serve ordinary people in their ordinary lives. The abrogation thereof serves whom exactly?

Procrustean GDP pursuit may well be oversold. Caveat subfragator. These are important questions, don't hesitate to ask them.

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Do you have suggestions on where we could find more examples of this phenomenon?