Macroeconomics is different from the sum of microeconomics
I won't argue that it's greater than the sum (here, anyway, as I do believe it is), but I wanted to use this article on how big banks, post-bailout, are lending less to small businesses as an example of how macro- differs from micro-.
Thinking microeconomically, one should (hopefully) understand why banks are lending less to small businesses than they were in '08. In a nutshell, many, many more people had jobs and were buying things at that time; now, not as much. If a person or a business has money right now, they should sock it away, as interest rates are low, and the future is uncertain. All of this is because the purpose of microeconomic thinking is for a person or a business to most efficiently meet their needs.
This should not be a surprise.
Thinking macroeconomically, however, one considers different goals. The goals, macroeconomically, are how to achieve the most stable economic climate, in order to most effectively allocate resources to those goals set by the country.
The tools differ, too. In microeconomic policy, you look at what you need, what you can offer, and how much you can get. You have a set of rules, a climate in which you operate, regardless of your size. Your decisions are self-interested, first. In macroeconomics, you set the rules, you consider the multifaceted impacts of the countless microeconomic decisions, and you look for the most effective tools that push huge sums of resources in order to improve conditions.
Banks think microeconomics. They do not have a charter for the public good or the macroeconomic climate, and even though they influence it, they cannot base their decisions on those influences, but instead, on their own self interest. This is the fundamentally different reasoning between the likes of Reich and the likes of those in Congress and both Administrations over the relative value of big banks to financial health. Current government really believed that banks' impacts on the macro- climate were so large that they warranted a gigantic bailout. Banks, thinking micro-, took the money, and saved it or gave it to the folks who got it for them (bonuses). Reich, et. al., argued, from macro-, that if a bank is "too big to fail, then it is too big, period." We argued for macro- regulations that would break up banks, or at least insulate the general public from the damages from their failures.
Banks, still thinking micro-, now conclude that their size and their genius got them GIGANTIC bonuses while the rest of the economy teeters. Macroeconomically, that's ridiculous thinking, and is the result of distorted incentives and risks, of bad macro- policy. Microeconomically, however, it is dead-on true.
We need to get those decisions out of their hands.
Thinking microeconomically, one should (hopefully) understand why banks are lending less to small businesses than they were in '08. In a nutshell, many, many more people had jobs and were buying things at that time; now, not as much. If a person or a business has money right now, they should sock it away, as interest rates are low, and the future is uncertain. All of this is because the purpose of microeconomic thinking is for a person or a business to most efficiently meet their needs.
This should not be a surprise.
Thinking macroeconomically, however, one considers different goals. The goals, macroeconomically, are how to achieve the most stable economic climate, in order to most effectively allocate resources to those goals set by the country.
The tools differ, too. In microeconomic policy, you look at what you need, what you can offer, and how much you can get. You have a set of rules, a climate in which you operate, regardless of your size. Your decisions are self-interested, first. In macroeconomics, you set the rules, you consider the multifaceted impacts of the countless microeconomic decisions, and you look for the most effective tools that push huge sums of resources in order to improve conditions.
Banks think microeconomics. They do not have a charter for the public good or the macroeconomic climate, and even though they influence it, they cannot base their decisions on those influences, but instead, on their own self interest. This is the fundamentally different reasoning between the likes of Reich and the likes of those in Congress and both Administrations over the relative value of big banks to financial health. Current government really believed that banks' impacts on the macro- climate were so large that they warranted a gigantic bailout. Banks, thinking micro-, took the money, and saved it or gave it to the folks who got it for them (bonuses). Reich, et. al., argued, from macro-, that if a bank is "too big to fail, then it is too big, period." We argued for macro- regulations that would break up banks, or at least insulate the general public from the damages from their failures.
Banks, still thinking micro-, now conclude that their size and their genius got them GIGANTIC bonuses while the rest of the economy teeters. Macroeconomically, that's ridiculous thinking, and is the result of distorted incentives and risks, of bad macro- policy. Microeconomically, however, it is dead-on true.
We need to get those decisions out of their hands.