The Failure and Destruction of Macroeconomics: A New Course of Action Part 3

In my first three blog posts (Ultimate Purpose, Wellbeing, and Valuable Action) I’ve laid out a rough set of fundamental principles that I then expand upon to come to conclusions about what actions I and the rest of the world should take.  If these basic principles are good then they will lead to good decisions.  If they are bad then even the most intelligent thought based on them will be flawed and will likely lead to bad decisions.  I always keep them at the forefront of my discussions and open to debate so that they can constantly be improved.

Macroeconomics is flawed in many ways, but its most damning failure is the inadequacy of its basic purposes. Macroeconomics states that the three goals of a state managing that economy are to increase GDP growth, lower unemployment and lower inflation.  These goals are rarely spoken of and never questioned.  I understand why these are good things in general to strive for.  Jobs and GDP roughly tend to cause wellbeing, my stated purpose, and inflation can often decrease wellbeing.  Still, I believe the ultimate economic objectives of our government should be beneficial in either a more tangible (like energy and other goods) or fundamental (like wellbeing) way.

I feel this because of what macroeconomic theory has caused governments to make many bad decisions in the past and present.  Take the example of a government which is trying to find a way to stimulate its economy out of a depression (GDP decline, rising unemployment and deflation).  It decides to pay millions of people to dig holes and then fill them in again for 8 hours a day for a year.  This accomplishes creates a million jobs and the money spent to pay those people and the money they then spend on goods will increase the GDP.  Inflation will also rise, but that’s actually acceptable in this situation because it counteracts deflation, which is also a goal of macroeconomic policy (it just isn’t talked about much because most countries don’t experience deflation very often any more).  Think about this policy from a wellbeing perspective, though.  Most likely those workers feel terrible because they know they’re doing something purposeless (though admittedly they’re happy to receive a paycheck); the workers digging holes are now away from their families and opportunities to enjoy their lives and improve; the project isn’t creating anything of value like energy or a car that people might want to use; the money to fund the project had to be borrowed and nothing of value is being generated to repay that loan and its interest.  This actually partially  happened in Japan in the 90s.  The government spent trillions of dollars, much of it going to projects like building bridges that no one needed and museums that no one attends.  Jobs were created and money was spent when these bridges and museums were created, but they didn’t generate much value (not enough to justify their cost).

According to macroeconomics, paying workers to dig holes and fill them in again is a very beneficial way to stimulate a depressed economy, but according to goals of wellbeing it is horribly destructive.  The worst part about macroeconomics is that it works on unimaginably large scales.  Macroeconomic thinking informed Barack Obama’s stimulus bill and is the reason why wind farm projects were scrapped (it doesn’t take many people to build and maintain a windfarm, ie, it doesn’t lower unemployment much) while subsidies to the purchases of things like cars and TVs were added and increased (consumer spending is vital to GDP growth).  787 billion dollars could have generated huge amounts of value for the U.S., its people and the world.  Instead it was squandered in order to achieve the never examined goals of macroeconomics.

GDP growth, low unemployment, and low inflation are often effective ways to bring wellbeing to people.  We have to keep in mind that they are a MEANS to the more fundamental objective of wellbeing.  When these become the ENDS, then wellbeing is forgotten and these goals are accomplished in destructive ways.  And when we’re talking about the dominant ideology of the U.S. and the rest of the world, the destruction is massive.