Assumption Vs Realism

Please read,

John Stewart Mill vs the ECB,

first at,

http://economictimes.indiatimes.com/Opinion/Editorial/John-Stewart-Mill-vs-the-ECB/articleshow/6268798.cms?curpg=1

You know economic-theories are, generally, based on assumptions. Assumptions that belong to different time-frame and far from the realism we live in. To make them workable we need to replace assumptions with realisms, in case we want them to illuminate the reality we live in. To cut short, Economic knowledge is constrained by the assumption of economic theories, mainly international and economic theories related to growth. As far as, fiscal austerity is concerned we are taught in class rooms that government decides it revenue according to its expenditure and not the other way around, that caught my attention the day i heard it. It forced me to think that it must be here where micro becomes macro because at micro level a rational person’s expenditure is decided by his income. I have also read in economic papers that micro-economics should be our base for macro economics but is not in practice (read “Time Consistence Problem: The Credibility and Feasibility of Economic Policy” by Kydland and Prescott). The lust to cash-out long-term demand or long-term interest-rate/profits/income in short-run results in frequent trade-cycles, and, i’am of the opinion that besides income and expenditure the government should also create a reserve or precautionary capacity to meet unforeseen contingencies, like recession.