Neither macroeconomics nor the statistics is in any way divorced from the real world. To see this, we need to keep to the subject at hand: politics. The new online casinos you try your luck on likely have different bonus, rewards and payout structures, based on where they obtained their operational licence, for instance.
The roots of modern macroeconomics lie in political economy. The application of abstract, simplified economics to policy-making, so to speak, is a story with a political angle.
Some of this story is inherent in the subject matter. For example, virtually everyone agrees that a central role of modern macroeconomics is the regulation of economic activity, and indeed that this regulatory role was one of the major themes of John Maynard Keynes’s life and thought. Certainly, the impact of Keynesian thinking has made it a larger part of mainstream economics than ever before.
Likewise, the impact of the Great Depression, and the “Keynesian Revolution,” cannot be understood without having a sympathetic view of New Deal fiscal policy. Still, we must acknowledge that most economic forecasters and policy analysts are not economists, and never have been. The bulk of economists, however, belong to the social sciences, rather than the natural sciences, and their discipline has been shaped by their worldview and methodologies.
Therefore, if you wish to understand modern macroeconomics, the first thing to do is get to know modern political economy.
THE SEEMINGLY CORRUPT
Even so, it may seem, to one accustomed to the aura of academic rigor and precision, that modern macroeconomics has been corrupted by the mores of academic political economy. In this view, most of economics is a collection of data to be interpreted, rather than a subject requiring great knowledge of the natural sciences.
This issue is by no means confined to the political class. To cite one example, remember that in this same moment, we have a chorus of mainstream economists predicting that Donald Trump cannot possibly win the White House.
I’m here to tell you that these economists are wrong.
As I detail below, it is politicians, not policy experts, who drive the world of economics. Indeed, while economists believe themselves to be professionally objective, in truth, it is their implicit biases and political allegiances that drive their work and their theories.
This is not because we are a bunch of lefties, or because we read Robert Anton Wilson’s poetry and subscribe to Ludwig von Mises’s borscht and go on social media. Rather, it is because we have fallen into the trap of drawing the illusory unity of the empirical and the theoretical from the free market itself.
While economics, of course, is a scientific discipline, the reality is that the empirical and the theoretical are intimately connected. Although the empirical results of an economic model may not be perfectly consonant with the theoretical conclusions, in the real world they often are. For example, today, the continued weakness of the US dollar reflects the new normal of a zero interest rate, period, which is consistent with the assumptions of most economic models. If monetary policy is working, why would the dollar be weak?