Speech to Local Chamber of Congress --

Speech to local Chamber of Congress -- Macroeconomic vs. Microeconomic influences today

Let's take a macro view of this problem! Let's take a micro view of this problem! When we use such expressions colloquially, we usually mean taking a large vs. A small picture perspective. It is usually assumed that having a big picture perspective is the better one, because it is more far reaching in its nature. But a critical holistic view of macro and microeconomics theory shows that decisions made on the small-scale, or microeconomic level, can critically impact average buyers and sellers in ways that often are invisible to the naked economic eye of the consumer or capitalist as well. Both micro and macro factors must be considered together when making economic decisions on a personal level.

Microeconomics, also defined as classical economics as first preached by Adam Smith in his text the Wealth of Nations, or neo-classical economics, tends to look at the economic picture from the point-of-view of the individual consumer or supplier. Thinking of the normal price in terms of supply and demand in terms of" "What determines supply?" And "What determines demand?" is typical of this approach. (King, 2005, Chapter 1) But whereas microeconomics got started on the basis of an intellectual breakthrough on the part of an individual -- Adam Smith -- world events set the stage for macroeconomics to emerge in the 1930's. The world event called the Great Depression stimulated policies to deal with the cycles of recession and depression that had begun to characterize the world economy. Keynesian economics, explained depressions through consumer's aversion to purchasing in a fearful economic climate of job scarcity. (King, 2005, Chapter 15)

For example, demand on an individual, or industry level basis is essentially a microeconomic concept, in contrast to macroeconomic concepts such as aggregate or national levels of supply and demand. Microeconomics suggested that the economic law stated that "supply creates its own demand" in which the income earned producing a certain quantity of goods and services should be sufficient to determine how much to purchase of the same products. However in a complex economy with sticky prices and wages, where demand and supply is stimulated by many factors, and financial sectors are in various stages of development, and political institutions fail to promote certainty and optimism, and there are also strong international and national linkages and dependencies that do not perfectly produce a correlation between supply and demand within every industry, for every product. The theory of aggregate, or national demand is the idea that the ability to spend on the output of an economy may not be identical to the ability to produce that output. (The Digital Economist, "Aggregate Demand," 2005)

However, the increased demand for a good due to a lower price is a microeconomic decision that often still holds true. One personal decision I recently made was to become a member of a local Costco Warehouse. As noted in a recent New York Times Article on Costco, "the piece de resistance," of one recent acquisition of a consumer at Costco, "the item he most wanted to crow about, was Costco's private-label pinpoint cotton dress shirts. 'Look, these are just $12.99, he said, while lifting a crisp blue button-down. 'At Nordstrom or Macy's, this is a $45, $50 shirt.'" (Greenhouse, 2005) Economies of scale, that the more a retailer buys the more he can sell at a cheaper cost because of reduced costs of inputs, hold true at this retailing giant. "Combining high quality with stunningly low prices, the shirts appeal to upscale customers - and epitomize why some retail analysts say Mr. Sinegal [of Costco] just might be America's shrewdest merchant since Sam Walton." (Greenhouse, 2005) "But not everyone is happy with Costco's business strategy. Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco's customers but to its workers as well. Costco's average pay, for example, is $17 an hour, 42% higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish." (Greenhouse, 2005) "Costco's workers were paying just 4% toward their health costs," reflecting the owner's belief that the warehouse's ability to buy in volume means that "a happy employee is a productive long-term employee," and better benefits and wages attract a supply of more qualified works, again according to the microeconomic principle that one goes to the place where one's pay per hour is likely to be highest. I, as a consumer, shop at Costco for the cheapest goods. Costco workers chose to work there rather than Wal-Mart, because it pays better wages and benefits to workers.