What is
macro, and how could it be sleeping? I found this definition on Investopedia (https://www.investopedia.com/terms/m/macroeconomics.asp):
Macroeconomics is a branch of the economics field that studies how the aggregate economy behaves. In macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as inflation, price levels, rate of growth, national income, gross domestic product, and changes in unemployment.
This
definition reveals that macro is about the economy as a whole. It looks at GDP,
for example. GDP is the sum of all goods and services produced. Macro does not
emphasize toaster ovens or massages or the value of an airfare to Munich. It
focuses on one number that represents EVERYTHING that is produced. It also
doesn’t zero in on prices of jeans or a haircut – it emphasizes the average
price of everything. Some people like to call it “the big picture.” As if we
were looking down on the US economy from space and we couldn’t see all the
detail.
In macro, we
ask if national output is going to rise or fall. Will the inflation rate be 3%
or 5%? With that in mind, economics or even what we might call national
economics is much broader than macro. We might be interested in the parts of a national
economy. How is the coal sector doing? What’s going on in Minnesota? How
productive is the retail sector? What’s with Amazon.com?
So when I
suggest that macro might be sleeping, I do not necessarily mean that we don’t
have economic questions and challenges in the USA. Some of these issues can be
national in scope but they are not MACRO.
You might
react to above by saying who cares? If it is economic and if it affects the US,
then why split a hair? Because it matters for both understanding and for policy.
If you have a heart problem, you don’t go to a general practitioner. You go to a cardiologist. They are both doctors and both can treat you, but a GP
and a cardiologist examine you differently and have very different options for
your treatment.
As I see it
today, we are confused about the US economy. We put on our macro hats to view
our problems and policies but we don’t really have macro problems now. Macro is
asleep.
What’s a
macro problem? A recession with very high unemployment is a macro problem.
Deflation is a macro problem. Hyperinflation or even high inflation can be a
problem. A labor shortage could be a macro problem. And while we worry today
that any of those problems could happen in the future, we mostly lumber along today with
employment and output growing and inflation under control.
Notice too
that our typical macro policies are on hold. We had a massive government fiscal
stimulus after the recession hit in 2008. We pumped money into the economy like
a squadron of helicopters dousing a forest fire. But that was years ago and now we talk about
normalization of these policies. We are not discussing an aggressive set of
monetary or fiscal policies to either spur the economy on or to prevent rapidly
rising inflation.
So whether
it is macro indicators or macro policies, macro seems to be on hold, asleep.
But don’t we have national economic problems? The answer is yes. They just
aren’t macro and don’t require standard macro policies. But we are not used to
thinking that way. It’s the economy, stupid. Get on with the macro! And that’s
our problem. Macro policies don’t fit our current problems. We don’t really
know what to do.
What are our
national economic problems? What a question! We have plenty of them. But since
we both have limited time and energy for this, let’s focus on four. The first
is distribution of income. Economists have no consensus on what an ideal
distribution of income is. But if it walks like a duck and quacks like a
duck, then it might be a duck. What I am saying is that the distribution of
income is probably out of whack. No macro stimulus policy is going to
permanently change that. We need to seriously address this issue while
muttering the oath that one should not throw out the baby with the bath
water.
The second
and related issue is poverty. President Johnson decided to have a war on
poverty. Walk through the streets of any city and you will realize that we did
not win that war. I know this is a crazy idea, but to win that war we probably
need to focus on poverty. We don’t do that now. We have housing programs. We
have food programs. We have shelter programs. We have substance abuse programs.
We have job retraining programs. How
many separate programs do we have? That’s dumb. We should have one program. The
goal of that program is to treat each person until they are no longer poor.
Okay – some problems cannot be solved. But I would bet that a program
focused on poverty would have a much better record than one with a thousand parts
that is not focused on poverty.
A third
solution for national economic problems would aim policy at industrial evolution. We
are not a socialist country, and I am not recommending that government take over
the economy, but I am suggesting that whether it is energy or artificial
intelligence or small business, we could use government funds to both study and
incentivize growth that would keep America competitive in an increasingly
competitive world.
Finally, if
I was Czar, I would work on racism in this country. You do not have to be a
genius to know that the Golden Rule trumps just about everything else. We teach
our children that starting a conversation with a nasty word is not the way to have
a productive conversation. Racism festers in this country, and it holds us all
back. We have a lot of laws that should lead to more equality but gaps remain in coverage and enforcement. Calling each other names is not going
to do much to move the ball forward. Realizing that this is the most difficult
of problems ought to engender open communication and respect since slogans do not accomplish the task. Talking with each other could go a long way as we hammer
away at each and every vestige of hate. This one is worth the effort because
this one impacts the other three I mentioned above. It is impossible to solve those
and other problems in an environment of resentment and distrust.
One of your best Professor. Thanks. hlg
ReplyDeleteThanks! Glad you liked it.
DeleteJust a comment on the Industrial Evolution. When the Government does the study and provides the incentives for industrial development...politics, graft, and crony capitalism (too often) sets up barriers to new startups and creates Regs and Incentives that favor Established Global Corps.
ReplyDeleteI know.. what’s new under the sun?
Danny, the government is already into everything. My suggestion is to reorient their thinking to future national competitiveness. While it seems highly unlikely that our government could do that there is no shame in suggesting such change. Of course, if government can reward then there will always be pressure for graft and corruption.
DeleteLarry, this is your best work yet! When it comes to things like wage equity, environmental protection, health care and the list goes on and on, one of the biggest complaints is that it is to expensive. This then leads to denials that there is even a problem. Our society makes choices on what it is willing to spend its money on. In the future we may have to decide if we actually want to pay for health care or not. Maybe that will be a good thing. In the future we may have to decide if we want to buy clean water vs polluted water. Point is that if all policy is base on weather something is to expense we are a doomed society. In my life I have always found you get hat you pay for and most times it is worth paying a little extra.
ReplyDeleteThanks for the good thoughts MotorcycleMan. Maybe I am like a fine wine! :-) I dig your drift but I have to say that there is so much waste in government that we could reorganize how we approach most things and end up spending less. But talk about a pipe dream. Reorganize government. Ha ha.
DeleteG’day, LSD. Interesting combo of problems that our fed govomit should/could attempt to solve via more legislation/policy. But I see in my rearview mirror a litany of laws/policies intended to solve problems yet we still experience them—e.g. poverty, addiction, racism. I don’t recall wage/income inequality ever specifically addressed by the fed govomit though chatter now says govomit should do something. Given the govomit’s lack of success in solving/improving poverty, addiction, and racism I doubt it could perform better in equalizing wages/income—the fundamental problem is not the inequality but that folks will never be satisfied with a govomit solution that dictates the amount of income they receive.
ReplyDeleteA corollary to that fundamental problem is that the aforementioned problems govomit has tried to solve were caused by humans being human. Despite knowing that certain behaviors will likely lead to positive outcomes—e.g. getting edukated, spending less than you earn, staying out of jail, abiding the golden rule, avoiding overdoes and consuming JD judiciously—some folks can’t/won’t do that. Ergo, govomit to the rescue. Problem and reality check: govomit can’t successfully legislate/policyate desirable and productive human behavior.
An industrial evolution that keeps ‘merica great again will also (and continue to) create winners and losers (more wage/income inequality?) as long as free markets are a driving factor/participant even with some govomit funding.
I’d be wunnerful if macro could wake up and wave a magic wand.
Excellent points dearest Tuna. I agree that there is always a Pandora's Box when the government gets into the act and we definitely do not know when the income distribution has reached an optimal spot. But I would argue that we already do a lot in the name of distribution of income. Our progressive tax system is designed for that very purpose as are all sorts of taxes and spending programs that attempt to redistribute money from the rich to the less rich. So I am not proposing anything new here -- but rather to recognize that if and when distribution of income becomes so skewed that it might endanger democracy. Skew also makes it possible for snake oil salesman to rally the wrong people around the wrong themes. Do we even know how to affect the distribution of income with government policy? Given the political climate today I doubt there is much chance that an effective program would be designed and implemented. The point of the post this week was to say that the usual macro policies are not relevant for today's national economic challenges. I am not sure, however, that our government has any real ability to use non-macro policies. Kinda sad, eh. We are out of bullets.
DeleteYeah, LSD. Traditional econ models haven’t been effective in “normalizing” the economy and like said couple years ago about growth staying =< 1% as the new normal the absence of a new, effective econ model might be the new normal. Yeah, too bad. Similarly, the old govomit policies haven’t solved problems and it’s likely “new and improved” laws/policies won’t do the fix either—the old normal?
DeleteClick click ammo didn't fire—guess our powder is old and/or wet. Better go git something else that is wet 😊.
Now don't go picking on the economic models. While the models have never been perfect the main problem is the people who use them or better said, those who prefer not to use them. For example we know the country has too much debt. That's not a very fancy thing to understand but our leaders don't get popular attacking debt. Same goes for labor force issues. The economics is straightforward but unfortunately our political leaders prefer sociology over economics. Sorry if I seem defensive about economic models...it's sort of like guns. Don't blame the guns on the killings. Someone had to aim them and pull the trigger.
DeleteOops, sorwy . . . didn’t mean to step on yer last nerve. So, it’s like, “It isn’t the magic in the wand but how the magician uses it?”
DeleteI'll have to think about that one. Is there a trick to it?
Delete