Focal Length

The more I listen to the news lately and think about the big problems we face, the more and more it seems the basic trouble starts with differentiating the macro problems and the micro problems.

In the most banal example, if something goes wrong with an appliance in my house, there could be several causes.  I could have misused the appliance, or ask it to do things it wasn’t designed to do.  A part could have simply worn out during normal use, under normal wear and tear.  Or there could be a manufacturing defect in my particular appliance, that would need to be addressed by the Company.  The basic problem- a broken appliance is the same, but the scope of the problem and its level of “seriousness” or whether it requires a change for everyone, is still up for grabs.

If we take this kind of analysis into economics, we have to look at all levels of a problem, and where solutions might lie.  Let’s tackle unemployment for a few seconds.

Unemployment, on a microlevel, is about you not having a job.  It’s easy for people to give advice about “taking anything,” going for retraining, moving to a better area and more.  But as we all know, any of these suggested “fixes” are more complicated than they seem.

For one, if you do take a job that pays less, there’s a chance your entire lifetime earnings will be less, and it will be more difficult to move up again, so people have a real incentive to try to wait for the best offer, rather than taking a “good enough” offer in the moment.  However, the more opportunities you pass up, the longer you are unemployed, and the harder it will become to be re-employed, given the national stats, and the more likely these folks are to fall out of the labor market all together.  Retraining may not be available or may be expensive, something that’s hard to afford if you don’t have a job.  Moving for a new position if you can’t sell you home can cause family and economic stress, rather than solve problems.

Getting re-employed may not be as easy as it once was on the person to person micro level.

On the macro level, what can we reasonably expect State and Local Governments to do to increase jobs?

Unless we’re talking about FDR style public works projects (which we probably could use to fix a lot of failing infrastructure left over from that era), the Feds can try to spend money to encourage things like low cost student loans for people to get training.  They can ease financial hardship by offering social safety net programs and extending unemployment benefits, although we can all easily question whether that really helps motivate people to look for work or delay it instead.

But the Government, at all levels, especially in the age of the internet, doesn’t do a great job matching people up with jobs.  Social networks like LinkedIn probably do a better job, connecting people with the people they know who can offer help and possible connections to available jobs with built-in recommendations.  Jobs need to be created by entrepreneurs, by small and medium businesses that are betting on expansion and increased demand.  Yet demand won’t increase if you don’t have something people need or want, and then we are back to a discussion of the classic supply and demand curve we all learned about in Econ 1.

It’s hard to get our economy out of the doldrums.  I’ve long thought a gradual increase in interest rates to calm down the volatility in the market and encourage people to save in safer vehicles, and even retire based on a guaranteed rate of return on investment (freeing up jobs) would work, yet my Economist friends insist that increased interest rates would contract the economy too much and exacerbate existing problems.

Our economy and the solutions to our problems are many.  Whether any of the solutions will work depend on micro decisions made by individuals as well as the big policy stuff that effects everyone.  But in order to make wise decisions, we have to take both the micro and macro picture into consideration.  Each individual story is not the only story, but a data point as to how folks are behaving and reacting to the big picture stuff going on.  If you are interested in changing the big picture, I think you have to really understand the ground floor- where the rubber meets the road with individuals- to make sure the big picture decisions will really help Bob from Iowa and Jeanne from Kansas and Dave from NYC, each with their own situations and challenges.

In the end, it’s about constantly changing your focal length and taking the big picture and small picture into consideration at the same time.  Not an easy thing to do.

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