Micro Decisions Make the Macro

by

When I took economics in college, there were two semesters to the freshman level courses. The first was called “microeconomics.” The second, “macroeconomics.”

Microeconomics was all about how individuals behaved in this chaotic economic world of ours. It came down to some really basic things, mostly ideas that Adam Smith pioneered in the late 1700’s with The Wealth of Nations. The idea was simply that individuals chose what is best for themselves.

The results of microeconomics led me to believe that government had no interest in governing the economy, other than laying a few basic ground rules that make commerce easy. For instance, governments should dictate what a pound is, where people can meet to do commerce (so as not to interfere with other necessary activities), what different commodities actually are and are not, etc…

See, in the end, individual actions and decisions come together in the marketplace and push and pull the prices of goods up and down. These prices send signals to individuals throughout the world and help them make decisions about what to grow or produce, what kinds of factories to build, or what jobs to train for. It also tells traders what goods to load on the ships and where to set sail.

We see this at work today. How many of you look at the prices of things to make your decisions? Very rarely do we go about out day without even thinking about the price. In those cases where we don’t care about the price, it’s usually because it is so cheap that we know it’s not worth bothering over. Otherwise, the price of everything dictates what we do, because it helps us make wise decisions for our own particular set of needs and wants.

Macroeconomics, on the other hand, tried to quantify the above into a giant framework of simple equations. It gave economists the false sense that they somehow understood what was really happening because they had some big fancy numbers with fancy names. Things like GDP, money supply, savings rate, etc… became the stock and trade of these economists.

I won’t deny that some observations and conclusions of macroeconomics are not only correct but necessary. One of those is the concept of money supply.

However, other conclusions are obviously incorrect. The idea that taking money from one person and giving it to another will help both people is so incredibly absurd and wrong that we have invented a word for it: stealing. This is the foundation for all the social programs and bailout programs and economic stimulus programs and more.

This is why I oppose any and all social programs and forms of government charity. People try to sell these programs by looking at only one end of it. They totally ignore the other part where they are stealing people’s livelihoods and ruining business opportunity. In Korean, there is a saying for this: “Give the disease then give the medicine.” Are you supposed to feel grateful for unemployment benefits when the reason you are out of a job is because no one can afford to pay the unemployment to hire you?

In the end, the only bit of wisdom to come out of economics is simply this. People make decisions that benefit themselves, generally. And when people work together, they can make decisions that benefit both of them at the same time.

It really boils down to the Golden Rule as taught by Jesus: Do unto others as you’d have them do to you.

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