Chapter 1 Myths and magic: introduction, objectives, and preview
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Chapter 1 introduces the reader to the book, explains the objectives, and gives a preview of some important conclusions that are reached. A basic idea here is that we do not yet fully understand the macroeconomics of a modern economy, because it is infinitely complex. Consequently, it is easy to accept myths that are: (at best) microeconomic ideas that have been assumed to be true for the entire economy; or (at worst) simply extrapolations of tautological statements. The objectives are: (1) to debunk many commonly held myths about the economy; (2) to take a small step toward incorporating real world complexities into macroeconomic thinking via the concepts of economic magic and black magic; (3) to provide a new perspective on the extreme complexity of the economy by explaining how economic shocks are transmitted throughout an economy via the interaction of upstream and downstream influences; and (4) to stimulate macroeconomic research that is outside the box. The chapter lists 11 economic myths and 13 causes of economic magic and/or black magic. It also gives the three elements in the transmission mechanism of these causes throughout the economy, namely: Say’s Law, Keynes’ Law; and a new concept called Leontief’s Law. The first two relate to the downstream effects associated with the well-known multiplier effect. Leontief’s Law relates to the upstream effects of a shock.