sábado, agosto 29, 2015


How Macroeconomic Data Encourages Government Intervention:
In a free market environment free of government interference, the “economy” doesn’t exist as such. A free market environment is populated by individuals, who are engaged in the production of goods and services required to sustain their life and well being, i.e., the production of real wealth. Also, in a free market economy every producer is also a consumer. For convenience sake we can label the interaction between producers and consumers (to be more precise between producers) as the economy. However, it must be realized that at no stage does the so called “economy” have a life of its own or have independence from individuals.

While in a free market environment the “economy” is just a metaphor and doesn’t exist as such, the government gives birth to a creature called the “economy” via its constant statistical reference to it. For example, the government reports that the “economy” grew by such and such percentage, or the widening in the trade deficit threatens the “economy.” The “economy” is presented as a living entity apart from individuals.
According to the mainstream way of thinking, one must differentiate between the activities of individuals and the economy as a whole (i.e., between micro- and macroeconomics). It is also held that what is good for individuals might not be good for the economy and vice-versa. Within this framework of thinking the “economy” is assigned a paramount importance while individuals are barely mentioned.

In fact one gets the impression that it is the “economy” that produces goods and services. Once the output is produced by the “economy” what is then required is its distribution among individuals in the fairest way. Also, the “economy” is expected to follow the growth path outlined by government planners. Thus whenever the rate of growth slips below the outlined growth path, the government is expected to give the “economy” a suitable push.
In practice, so-called macroeconomic indicators are fictitious devices that are used by governments to justify intervention with businesses. These indicators can tell us very little about wealth formation in the economy or individuals’ well-being.

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