Macroeconomics is supposed to be the side of economics that deals with “big” issues –policy issues for the national economy. It includes fiscal policy, unemployment, monetary policy (cost of money), international trade, and things like that. It is adjacent to the study of political economy (mostly ideology) and microeconomics (individual economic actors dealing with supply and demand, pricing, etc.).
I can usually wrap my head around political economy (politics a real part of my world) or microeconomics (interact daily with microeconomic decision-making). But I totally fail to comprehend what macroeconomic indicators are all about. They seem to be built on a house of cards! Way too abstract for a simple-minded bloke like myself.
Here are some examples:
Taxation: It seems to me that the real issue of taxation is WHO pays and who doesn’t. Those who insist on balanced budgets place all the emphasis on the total amount of revenue collected vs. the total outlays of government. — apparently an article of faith that the wealthy paying more somehow depresses economic growth (investment being the life blood of capitalism). What if we took an alternative view of taxation, focusing instead on progressivity in the tax rate as the engine of economic growth? Meaning that lower taxes on consumers, rather than investors, would be the real stimulus. See below for my questions about economic growth in general. And one school of thought maintains that what government spends its tax revenues on is more important than the actual dollar value of tax receipts – less on defense, more on targeted consumer relief and job creation, is better. But does the economy need further stimulus at all? Ultimately, in democracies, it depends on the preference of voters – we think – shooting us into the realm of political economy.
Actions of the Fed: This is all about that thing called the “money supply.” There seems to be a continuous tension in actions of the Federal Reserve (which ripple throughout the banking system) between unemployment and inflation. Historically, the Fed has always vacillated between being too “soft” on inflation by not raising rates (discount rates, prime interest rate) or selling enough bonds (contracting the money supply), and too “hard” on inflation, causing rising unemployment due to lack of investment incentive (high rates for loans). The obvious alternative to all this anxiety about inflation is simply to declare: “who cares?” – in the end, inflation is only bad if it outpaces wage growth! There are many factors controlling wage growth, which leads to my next example of questionable macroeconomic indicators.
Full employment: The standard definition of “full employment” is if everybody stops looking for work at the “prevailing wage.” Oddly, that is also the motivation for strikes! In any case, labor economics clearly points at lower unemployment leading to greater worker power. If I don’t pay my workers more in an inflationary economy, their lives will be immiserated. But who says I shouldn’t pay them more, anyway? If they do not want to work for me at the rate I’m willing to pay, and nobody else is willing to pay them more, they quit looking, leave the labor force – contributing to full employment! They count as unemployed only when their expectations are that somebody will pay them more! If labor and capital are interchangeable “forces of production,” to use Marx’s term, workers will have bargaining power over wages – their labor literally BECOMES capital. The key question in all accounting of employment: what portion of the labor force is unhappy?
Economic Growth: What is economic growth, anyway? Is it growth of money supply? No. Is it growth in employment? Maybe (see above). Is it new opportunities for some to get rich? Most likely. This, after all, is what “entrepreneurship” is all about. But we’re learning all the time about costs of economic growth. There is inflation, which may be unbalanced, making some suffer while others prosper. And, these days, the final crunch: limited resources on the planet, causing what appears to be a race toward an uninhabitable Earth. Instead of encouraging growth, macroeconomic policy would do better to MANAGE growth, limit it in many sectors or geographic locations. And this needs to be an international project, given the level of global inequality we now have. But we favor democratic means of setting priorities and there are many different populations in the world, all with their own preferences. Are these what we call markets?
Trade and Tariffs: Perhaps the last, best, hope for markets to drive economic activity is in international trade. Government fiat, as opposed to market forces, is my clear bias in the things mentioned above. But international trade is different. It seems to me that trade between nations ought to be free. Yet government protectionism, restraints to trade via tariffs, has a long history of controlling relations among nations. Trade protection’s goal is to reduce competition. It goes back to political economy, of course. Those players who have a dominant power role in any country will determine its trade policy. Consumers want cheap goods and services. Workers and producers want captive customers. And, if the customer base at home can’t be guaranteed, they want to exploit potential customers in other countries (export).
As I understand it, there are some new developments in macroeconomic thinking. Perhaps in another ten years some of the glaring contradictions in my examples above will no longer be debated. Regarding taxation, greater progressivity in the tax code, everywhere, seems to have growing popular support – fewer economists now can argue that lower taxes spur economic growth, at least in the academy if not on Capitol Hill. Modern Monetary Theory (MMT) is still controversial but is talked about by serious economists – it says, basically, that countries with fiat currency (they print their own money) can’t have meaningful debt. Balanced budgets are strictly for microeconomics (family or business finance, and states/local governments). Full employment is not universally seen as a recipe for runaway inflation, but more as a tool for improving living standards (although I’ve yet to see a good analysis of the impact of folks dropping out of the labor force). And capitalists’ arguments for increased economic growth are growing weaker every day, perhaps from fears of an “overheated” economy. Political calls for increased international competition sound more like a call for free trade, less like protectionism.
Utilitarian ethics stipulate that society always strives for the “greatest good for the greatest number.” In macroeconomics, it is never explicit what utilitarian purpose is served. Sorry, but it seems more worthwhile for me to concentrate on the political economy side and the microeconomic side in the conduct of my own economic life. Let powerlessness stand for utilitarian moral failure.
We all need to use our economic agency, such as it is. Damn it — do good!
— William Sundwick
Warp and Woof 