every attempt to find a statistical measure in the form of a general average of the total volume of production, or the total volume of trade, or general business activity or whatever we may call it, will merely result in veiling the really significant phenomenon, the changes in the structure of production. (Hayek 1935)and he continued to warn against allowing policy to be guided by macroeconomic theory: “I fear that those who believe that we have solved the problem of permanent full employment are in for a serious disillusionment” (Hayek 1978). In a further prescient comment during the stagflation of the 1970s, Hayek’s assertion was that “[t]he Keynesian dream is gone even if its ghost will continue to plague politics for decades” (Hayek 1975). To be fair, the difficulty for politicians is that the electorate judges them largely upon the basis of economic performance; and, although the evidence is soundly against political intervention—the old adage goes “There is no situation so bad that government intervention cannot make it worse”—it is rare for a politician to accept that truth.
The economy is complex and macroeconomics is simplistic. Yet, macroeconomic analysis provides the only theoretical basis upon which to forecast the economic trends that are the stuff of politics. And, although there is a good living to be made by the more astute economists, macroeconomic analysis and forecasts are inherently implausible:
[t]he appearance and growth of unemployment in an inflationary period shows only too clearly that employment is not simply a function of total demand but is determined by that structure of prices and production that only micro-theory can help us to understand. (Hayek 1978)—G. R. Steele, “Are Macroeconomic Theorists Rational?” Quarterly Journal of Austrian Economics 10, no. 2 (Summer 2007): 10-11.
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