The Beauty of Tautologies

3 days ago

Tautologies, often dismissed as simplistic definitions, are crucial in economics for promoting clear thinking and revealing plausible causal relationships.
The Equation of Exchange (M*V=P*Y) is less intuitive than the Cambridge Equation (M=k*P*Y), which clarifies that NGDP is determined by base money and the share of income held as cash balances.
The savings equals investment (S=I) identity shows that increased saving leads to increased investment, contradicting fears that thrift causes depressions; Keynes' paradox of thrift relates to hoarding, not saving.
Say's Law (aggregate supply equals aggregate demand) holds true, but sticky wages can cause low output during nominal spending drops, making it a supply-side issue.
GDP equals GDI emphasizes that stabilizing NGDP aids labor and financial markets, and technological advances like AI could boost income even with high unemployment.
The tautology S - I = current account balance suggests protectionism affects trade balances via changes in saving or investment, not directly through tariffs.

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