Is all macroeconomic analysis time-pass, idle chat and ephemeral?

Macroeconomics comprises 6-7 interconnected variables, each of which can or will be different depending on what other 6 are. So what you get at the best of times are wide ranges of possible outcomes.

The first month of each year is a time to wonder and ponder. Wonder, about the future and ponder, about the past.

Where economics is concerned it is hard to say which is more entertaining, modern macroeconomics or economists. Let me explain.

Depending on whether you are an optimist or a pessimist, you tend to come out with feel-good projections or deep worries. But, truth be told, each forecast or projection and worry is what is called a ‘hypothetical syllogism’ in statement logic.

This syllogism takes the form of saying “If X, then Y.” The reverse is not true in economics because it can’t be inferred from the first statement.

Thus, if you say “Not X”, it doesn’t necessarily mean you are saying ‘Not Y ”. It might, and it might not, because “Not Y” can be from the remaining 24 letters of the English alphabet, each denoting a separate possibility.

That’s why I have learnt to treat all macroeconomic analysis as time-pass, idle chat, ephemeral of no intrinsic value for more than half-an-hour or so.

This is because, formally, macroeconomics comprises six or seven interconnected variables — the Xs and the Ys — each of which can or will be different depending on what the other six are. So what you get at the best of times are wide ranges of possible outcomes based on hypothetical preconditions. In short, if X then Y.

You can go on endlessly conjuring up possibilities. It’s a nice game to play but that’s all it really is. That’s why the best economists stay away from it.

What about, shall we say, the not-best economists, then? I can do nothing more than to direct you to judge for yourself from a recent working paper published by the National Bureau of Economic Research (NBER) of the US.

I am sure the economists who wrote this paper are amongst the best but the paper they have written is, at best, an entertainment. So it must be taken in that spirit because it is about — hold your breath — the “price of nails since 1695 and the proximate source of changes in those prices.” In the US, of course, where such data is available.

The authors say that they chose nails because “they are a basic manufactured product whose form and quality have changed relatively little over the last three centuries, yet the process for producing them has changed dramatically.” No one can argue with this.

Hence, they are a good way of examining “a wide range of economic and technological developments that touch on multiple areas of both micro- and macroeconomics.” Really?

So what do they conclude? It seems from about 1790 to 1950 or so “real nail prices fell by a factor of about 10 relative to overall consumer prices.”

Obviously the cost of construction went down, never mind that it was an infinitesimal decline. The share of nails in GDP dropped was 0.4 per cent of GDP in 1810.

Amongst all the other reasons for this, say the authors, “the main was multifactor productivity growth in nail manufacturing, highlighting the role of the specialisation of labour and re-organization of production processes.” You’ve got to be joking, right?

Who can say? It seems the “real nail prices have increased since the mid 20th century, reflecting in part an upturn in materials prices and a shift toward specialty nails in the wake of import competition, though the introduction of nail guns partly offset these increases for the price of installed nails.” Wah!

I rest my case.