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Macroeconomic Policy As If There’s No Tomorrow

Suppose that the Almighty announces at 12:00am that the world will end at 11:59pm – a mere 24 hours hence.  This announcement, though, is heard only by government officials.  In the announcement the Almighty also commands these officials to do their best to ensure that humankind’s remaining time in this vale is spent as economically sensibly as possible.

In this world, aggregate demand would matter greatly.  The intensity of spending over the next 24 hours would loom large, with any declines in that intensity not being balanced by any offsetting improvements in human welfare.  If Dick or Jane choose to save more today, the consequent reduced demand today for the meat sold by Dick’s butcher or for the earbuds sold by Jane’s consumer-electronics retailer will cause pain for employees of those establishments – pain not offset in any way by the increased demand for more R&D resources or for building-construction materials that would otherwise have come from Dick’s and Jane’s higher savings.

Savings and investment, by their nature, are oriented toward the future.  And time takes time to pass.  Economic actions – such as saving and investing (both financial and real) – that take place across time take real, tick-tocking, actual time to play out.  The higher demand for investment goods today – and for consumer goods tomorrow – won’t, in this world, ever materialize because there is no tomorrow.  Firms will have insufficient time to adjust to the changed pattern of demand.  A government devoted to promoting the public welfare would be well-advised, in this world, to do all that it can to counteract immediately any decline in demand in any existing markets.  With no tomorrow, it’s just as well that our leaders mortgage it in order to prop up today those demands that would otherwise fall because of a greater desire of people to save.

Why have even a single worker suffer unemployment today simply because people are saving more for tomorrow? Tomorrow we’ll all be dead.  Government activities that prevent a better tomorrow are justified, in this world, as long as they also prevent a worse today.

Indeed, any economic changes – such as changes in consumer preferences across the range of consumer goods, changes in the flow of imports, improvements in labor-saving techniques of production – would cause unjustified trouble.  Any changes would cause trouble not offset by future benefits.  Even, say, an increase in consumer demand for chicken made possible by a decrease in consumer demand for pork would cause unjustified trouble.  Because adjusting to any change takes time, with only one day left on our earthly clock, the economic harm suffered by workers laid off from their pig-farming jobs likely would not be offset in time by the benefits to workers from greater employment opportunities on chicken farms.

In such a world, economic change becomes a curse.  Better that government prevent such change.


But the world hypothesized above is not the world we inhabit.  We live in a world in which economic growth occurs through innovation and change – change that typically harms some people today, but which bears fruit tomorrow.  Yet only tomorrow.  The fruit from today’s change isn’t available to be enjoyed today.

And time, again, takes time to pass.  Real, tick-tocking, actual, minutes/hours/days/months/years time to pass.  In this world of real time, aggregate demand no longer looms with the importance that it does in a world with no tomorrow.  Artificially propping up demand today – preserving today’s pattern of production and consumption – no longer can be done without preventing the emergence of a new pattern of production and consumption tomorrow.  And tomorrow’s new pattern of production and consumption, if it is allowed to emerge in response to the voluntary spending and saving and investing and innovating plans of millions of consumers and entrepreneurs – will likely be more productive than is the pattern of today that it displaces.  At least, history suggest that this claim is correct.

It’s true that this process of innovative change requires that some people suffer reduced demands today for their services.  It’s also true that the market processes – the price adjustments; the interest-rate adjustments; the capital-structure adjustments; the adjustments in workers’ skill sets – that govern these changes take real, tick-tocking, actual time to occur.  The shorter the time span, the less likely are many prices to adjust downward when necessary.  The less likely are workers to adjust to new job opportunities.  The less likely are established yet declining firms to realize that, yes, they must shutter their doors because their economic time has passed.

It’s also the case that, no matter how bright the future is, it’s never known.  Today’s bird in the hand seems, to each individual bird-gripper, worth at least two birds in whatever bushes might bloom tomorrow.  So each individual bird-gripper is naturally biased toward government policies that promise him or her the prospect of keeping that bird firmly in hand.  Increased government spending seems to be such a policy.  “Whatever you do, feed my bird lest in its desperation it flies from my hand!” pleads the business person.  “If I lose this bird, I have no idea what other sorts of birds I might have a chance of catching tomorrow.”


The Almighty obvious doesn’t announce to government officials that the end is near.  But such officials behave as if the message is the same.  For them, tomorrow’s – that is, the post-election’s – economy is irrelevant.  That economy might be filled with all manner of efficiently operating and highly productive markets, and be marked by full employment.  But if getting to tomorrow requires the endurance of unemployment today, the typical politician will seek to mortgage that tomorrow in order to save his constituents (and, hence, himself) from the immediate inconvenience of unemployment today.  Raise demand, raise demand, raise demand.  If demand can be raised today, employment today can be kept artificially high.

Who cares about tomorrow?  Who cares about the counterfactual that is prevented from coming into existence?  It will always be a mere counterfactual.  We have no time for economic policies that allow market forces to play out over time – to play out in all of their rockiness, with their failure-to-keep-everyone-optimally satisfied-at-every-moment.  We have no time to worry ourselves about the microeconomic structure of production, the pattern of relative prices.  Changes for the better in those things take time.  Better that we simply treat with greater government spending the symptom – a symptom, sometimes, of real problems and, at other times, merely of beneficial on-going economic changes – than to be patient and let market processes work their way out over time.