Misunderstanding Micro and Macro

Micro and macro are terms used in economics, business and finance.  They pervade our lives although many do not notice.

Wikipedia defines them like this:

Microeconomics is a branch of economics that studies the behavior of individuals and small impacting organizations in making decisions on the allocation of limited resources.

Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets.

Micro is the small stuff or single instance and macro is the big stuff or the general case.  We make a mistake when we assume that micro describes macro.  That mistake is the basis for many of our failed beliefs.

It works two ways. An individual Islamic terrorist tells us nothing about Islam. It is wrong to treat all Muslims as terrorists or even inclined that way.  To avoid profiling because the generalization is wrong is itself a mistake. It requires a delicate touch.

Taking advantage of the “micro implies macro” or “macro limits micro” mistakes is the art of news media, institutions, politicians and many salespeople.

A single example of anything tells little about the underlying nature of things.  Macro is not that easy to observe.  For example, an employer who works at keeping wages low is not necessarily an evil person.  The micro example of frugal says nothing about macro greed.  There are many other reasons that could explain the micro.  Competitors are using automated methods and he needs low labour rates to compete.  The 15 workers are really only doing the work of 12 but he doesn’t want to fire anyone.  Foreign competition is becoming serious and even though their quality is not as high, the price is an issue.  The money saved is being spent on employee training.  The money saved is going to marketing to compete better with foreign goods.

Most people who are trying to change your mind focus on a single aspect of behaviour and infer that it somehow describes bigger and more complex behaviour.  It seldom does.

The price of defence to the thinking flaw is that you need to think more and do more research.  Neither is cost free so many people do neither.

In Canada, there will be an election in October.  If you have the inclination, it will be an interesting time to notice how readily politicians, their supporters and the media will use micro observations to support macro ideas.

That sort of thing has been going on a long time.

When I’m watchin’ my T.V.
And that man comes on to tell me
How white my shirts can be
But he can’t be a man ’cause he doesn’t smoke
The same cigarettes as me

(I Can’t Get No) Satisfaction, The Rolling Stones 1965

We all know that manhood is not defined by a cigarette brand.  In the macro sense cigarette brand has no meaning.  Neither is empathy defined by making hard decisions, nor Pacifism defined by patience.

Simple indicators of character are not absolute.  There is no social issue where any of us has a pristine resume.  Be a little cautious before you accept any single factor definition of anyone.

We are complex creatures in a complicated environment.

Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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