The Budget and Macro- Microeconomics

October 24, 2015

The other day I heard The Temporary Funding Patch Pattern in Congress by Kai Ryssdal for Marketplace. Mr. Ryssdal—whose show often feels like an exemplar of “the dumbing down of America” but really isn’t, mostly—talks with reporter Darren Samuelsohn about budget crises, one after another. The story sent my mind off, albeit in a slightly different direction.

I don’t know who gets credit for the first advertisement/meme which alluded to your family budget as a simile for the federal budget. “You don’t spend what you don’t have, so why should Washington?” is probably close to some of these messages, and we’ve been hearing them for so long that they go mostly unchallenged.*

The family budget analogy drives me effing nutso. Economics is comprised of many sub-disciplines, two of which—big ones—are macro and microeconomics. Macroeconomics looks at the “performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets.” Microeconomics, on the other hand, involves the study of “behavior of individuals and firms in making decisions regarding the allocation of limited resources.”

The descriptors are intuitive. Microeconomics looks at what you and I do, while macroeconomics looks at all of us, collectively. Now, I’m not an economist, but I’m very certain the discipline does not have two main branches if macroeconomics involves multiplying any microeconomics outcome by X people or Y households. That notion really disses macroeconomists, who are some of the smartest people in our midst, and surely well-versed in multiplication.

If we focus on the United States of America, our individual decisions inform our collective finances. But many more factors matter, too. It matters not at all to me whether my Ebay purchase comes from California or Canada, but a macroeconomist will care greatly, depending on how many people buy from Canada, as opposed to California. Similarly, a macroeconomist focuses on the purchase of tomatoes from Mexico or Willcox, AZ. A micro-economist simply focuses on the fact that tomatoes are one of the things I like to buy.

This family budget = national budget, writ large, is one more aspect of the dumbing down of America. It’s part and parcel of the notion that the world is about us. An old friend put it thusly: Nobody has a right to comment on my health care choices. If I’m paying the freight, no one has a right to say no.

My old friend, who claims a major or minor—I can’t recall which—in economics—must have taken only microeconomics classes. Health care is almost totally a macro issue from a policy perspective, yet so much about focuses on individual decisions. For sure, individual decisions drive the cost curve—whether they are patient decisions about what to buy, or provider decisions about what to sell—but controlling costs involves macroeconomics, almost 100%. Macroeconomics controls the issue because there are a few hundred million of us, but also because none of us pay the real cost of health care in our country. Co-pays and deductibles ignore subsidies to medical schools, government grants for research, and the tax deductibility of medical expenses and insurance premiums, to name only a few of the hidden health care subsidies.

I need to be clear about one issue, not yet raised, as I wrap up. I do not favor waste, whether it’s my waste or the federal government’s waste. Too often, I think, the family budget analogy gets tied to federal waste. In fact, government at all levels wastes money. So do all of us, and if you don’t believe me, think about all your consumer purchases, and how many are unnecessary, end up as garage clutter, or both.

Waste aside, our federal budget and national economic decisions are not simply the aggregate of all of our decisions. Notions like those misinform, and interfere with a real appreciation for our economic situation.

*Pieces by Daniel Gura and are Matt Berger are here and here, respectively. Neither nails the issue, but if Marketplace is your speed, they provide decent listening.


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