What is it with Microeconomists?

Worthwhile Canadian Initiative:

What is it with Microeconomists?

They are certainly not stupid. And they are certainly not ignorant either. I know that the ones I'm complaining about are smarter than me, and more knowledgeable than me. And that includes economics smarts and knowledge. Some of them make me feel totally inadequate on a daily basis (I read their blogs daily). Some of my best friends are microeconomists. But they just don't get macro!

I'm talking about money wages and employment. I can't be bothered to link to the posts I'm complaining about. And I can't be bothered to go through those posts and explain why their reasoning is wrong. Others have done this, and have failed. Or at least, have failed to make any impression on the 'microeconomic miscreants'. They seem to be preaching to the choir; and the choir is composed of macroeconomists.

I want to try a different tack. I'm not going to try to show that they are wrong. I want to try to understand why they keep going wrong.

But I'm not altogether sure why they keep going wrong. I have three theories, and am going to run through each in turn. Actually, I think we probably need all three theories to explain why microeconomists are just so confused about macro. ...

If all apples were identical, there would be no need for trade. Each worker would eat his own apples. No worker could be unemployed; he could just grow as many apples as he wanted to eat, and eat his own apples.

Even if apples came in different varieties, or there were a tabu against workers eating their own apples, if barter were easy there could never be unemployment. The unemployed workers could all just get together and swap all the apples they wanted to produce and sell. In barter, a supply of apples is a demand for apples.

It is monetary exchange (or rather, the high transactions costs of barter that make monetary exchange essential) that is the root of all deficiencies in aggregate demand. Each worker's apples are sold in his own private market. And they are sold for money, the medium of exchange. To demand apples is to supply money in exchange. And if people want to hang onto their money, rather than buy apples with it, the demand for apples, and the demand for labour, will be deficient.

A deficiency of aggregate demand has got nothing whatsoever to do with a deficiency of income. Income is always sufficient. It's always the same as goods sold. A deficiency of aggregate demand is a deficiency of peoples' willingness to get rid of money. The 'Paradox of Thrift', and the 'Paradox of Toil', are merely corrupt versions of, or way-stations to, the Paradox of Money. Each individual can increase his stock of money by buying less; but in aggregate they fail, but cause unemployment as a side-effect."