Macro Mistakes; R. Clites

THEFREEMAN IDEASON LIBERTY MACRO MISTAKES by Roger M. Clites Y OU and I and everyone else live, pro duce, and consume as individuals, but macro-analysts-economists, statisticians, politicians, and others-insist on looking at us in terms of groups or averages. They then reach conclusions, develop policies, and give advice based on statistics that may have nothing to do with the situation of any individual. No family has 2.3 children. Per.. haps no one in the entire country earns the average income. Too often those who are unaware of the nature of macroeconomics are led to make decisions which adversely affect their lives. In the case of politicians they may adversely affect millions of peo ple's lives, even entire national populations. The following is a personal example of how aggregate statistics may have no mean ing in an individual case. Twenty years ago a college where I was teaching went bank rupt. I was one of the fortunate few who was able to dispose of a home in the depressed housing market in the small town where the school was located. A friend in another state suggested that I might base myself at his home while I looked there for another teach ing position. Another person advised me not to move out of state. She noted that the unemployment rate in the state where the bankrupt college was located was the lowest in the nation at that time, 2.8 percent. The rate in the state where my friend lived was about twice that high.

But my goal was not to apply for all thejob Roger Clites teaches at Tusculum College in Tennessee. openings in the state. I needed only one job. As things turned out I located my next teaching assignment in the state with the highest unemployment rate, a double-digit figure. The averages, the aggregate, the "big picture" were not important to me. I was looking for just one job. Had I stayed at my former location I might not have learned of it. Just as an individual may be led by macro figures to make bad decisions, or to give bad advice, so political leaders may be caused to overlook individual situations by concen trating on averages or aggregates. Let's take another case which involves unemployment data. Ignoring the question whether there should be government unemployment ben efits, let's examine the process that is gen erally used to extend benefits when there is an economic downturn that continues for a considerable period of time. Usually the politicians decide that a person may collect additional benefits if the unemployment rate of his state is above a certain arbitrary percentage figure. But the state unemploy ment rate is of no importance to the person who is out of a job. The fact that few of his neighbors are unemployed does· not lessen his plight. He is just as bad off as the person in a state with a high unemployment rate who is also out of work.

Over and over we see reliance on aver ages as the basis of decisions that may affect individuals very differently. In fact, that is the only way government can carry out its 478 economic policies. And, while we may not be aware of it, individuals who rely on the advice from macro-type advisers may make decisions that turn out not to be in their own best interests. Those decisions may, for example, involve whether to accelerate or delay a purchase, whether to hold or change an inventory level, whether to change em ployment, or anyone of many other deci sions that we are often led to make on the basis of macro-data that may have little or 479 no relevance to our individual situation or, worse yet, may run counter to what we personally will encounter. Economic activity is not a group experi ence or an average experience. Only indi viduals think, and only individuals act. A macro-economist reminds one of the story of the man who was standing with one bare foot on a block of ice and the other in a bucket of scalding water. On average, his feet were 98.6° comfortable. D LITTLE LESSONS IN LARCENY by Russell Madden A t a family gathering last Christmas, I had the opportunity to observe an event all-too-familiar to anyone who has spent time around small children. My three year-old nephew was playing with a new toy he had received. The truck came with a number of smaller pieces: a driver, a tiger, and various accessories. Smiling, he carried his treasure into the living room where other family members sat. Immediately his two year-old cousin came over and seized the tiger from the back of the truck.