Supposed paradoxes and real contradictions at the core of macroeconomics

The article examines certain contradictions between reality and theory that are commonly referred to as paradoxes in the field of macroeconomics. This semantic shift is not insignificant, as it suggests that the thing itself (reality) and its opposite (the theoretical prediction) are not incompatible by virtue of an explanation that is presumed to exist but has yet to be discovered. Invoking the paradox thus serves to ground the legitimacy of the theory in the belief that it is capable of accounting for the observed phenomena, rather than in its actual ability to do so. The discussion will draw on three illustrative examples: the 'Feldstein-Horioka paradox', the 'rational bubble paradox' and the 'Ellsberg paradox'. In each of these examples, the supposed paradox takes the form of contradictory statements within the theoretical framework under consideration. Theorists have, of course, spent decades striving to reconcile these contradictory statements within the original conceptual framework or within a more flexible version, but the article shows that the supposed paradoxes are 'resolved' only at the cost of major theoretical inconsistencies, the deleterious effects of which are also examined.