Quote of the Day: Pedestrian Economics

Keynesianism is itself adorned in magnificent scientific costume and make-up, and its practitioners have built for themselves elaborate games to play that cause them to think that they’re engaged in something more than pedestrian economics. They can shift IS-LM curves, as well as aggregate-demand curves; they can calculate multipliers (“balanced budget” and otherwise); they can impress hoi polli with mysterious terms such as “liquidity trap,” “marginal efficiency of capital,” and “marginal propensity to consume.” But through it all, they – at least when doing Keynesian economics – ignore the very heart of the economy, namely, the goo-gob-gillions of daily adjustments that individuals make to changes in their knowledge, and the smaller – yet still large – number of creative acts that people do daily in hopes of improving their economic prospects. Paying far too little attention to these micro-level matters (or – what is the same thing – assuming these micro-level matters to be fixed and given in ways that, by assumption, leave demand as the only available variable to affect the economy), Keynesians of course can build impressive models that show how exogenous changes in demand will do this or that to the economy.

But these models miss 99 percent of the relevant action – and they miss all of the action that pedestrian economists never become aware of. No pattern of sustainable specialization and trade was ever created by aggregate demand. And no such pattern can be explained or understood by using a method of analysis that focuses only on what, in the final analysis, are largely the consequences of people’s success or failure at establishing patterns of sustainable specialization and trade.

Professor Donald J. Boudreaux expounds on the structural flaws of the Keynesian methodology.

I’d further add that pedestrian economics is in reality, heuristics (mental short cuts) paraded as economic reasoning that has been clothed with math models (mostly used or intended to justify an underlying uneconomic political belief.)