Macro is Asleep

Let’s suppose someone thought you were awake, and you were really sound asleep. They would talk to you and maybe they would ask you to do things and you would not move or speak. That would be surprising to your friend and maybe even upsetting. That’s why I am writing about macro being asleep. It is causing a lot of problems.

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.