MICRO VS MACRO ECONOMICS

June 22, 2010

MICRO VS MACRO ECONOMICS

Microeconomics is what you and I practice every day. We live within our means. We earn what money we can with our skills and effort. We try to spend it wisely on our most important wants. We save for a rainy day, to put the kids through college, and to build a retirement fund.

Macroeconomics is about the bigger picture: the sum total of the microeconomics of all the people and businesses in a city, county, state, or nation, or the whole world. It is only important as a guide for governments in their interventions into our microeconomics.

The interventions which affect our personal microeconomics are taxes, subsidies, money supply, credit supply, international trade agreements and embargos. All of these interventions shackle the free market, reducing the satisfaction of people’s wants.

The intervention with the most far-reaching consequences is the control of the supply of money and credit; it affects every sale and every purchase, and every choice between present wants and savings for the future. It is the cause of the business cycle with its eternal sequence of boom, bust, depression, and recovery.

If we had real money, we would have no more business cycles. We could save for the future with confidence that our nest-egg wouldn’t evaporate in inflation.

If we abandoned all the other interventions as well, there would be no need for macroeconomics. If then we each live within our means, the total amounts of balance of trade, exchange rates, and such would be unimportant. Prices would give us all the information we need to direct our efforts to provide our most urgent needs most efficiently.

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