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Opinion
Tyler Cowen

The Four Basic Truths of Macroeconomics

On their own, these four propositions elevate the field into the realm of the essential.

Macroeconomics helps explain why this happened.

Macroeconomics helps explain why this happened.

Photographer: Archive Photos/Getty Images

I was recently invited on Clubhouse to lead a discussion of macroeconomics, and numerous listeners were skeptical of the value of my chosen field of study. So allow me a few more words in defense of macroeconomics as a useful and at least modestly scientific endeavor.

The first and most important thing to know about macroeconomics is that a strong negative shock to demand — a sudden decline, in other words — usually leads to a loss of output and employment. Nominal wages are sticky, for a complex mix of sociological reasons, and so employers do not always respond to lower demand with lower wages for workers. Instead they lay some people off, and that can lead to a recession.