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Why “Macro” Thinking in Economics Is Such a Problem

As someone who teaches public finance (better termed the economics of government), I can’t count how many times I have heard politicians promise “comprehensive” reforms to some major problem. But what such efforts actually produce is always different from what is promised, because such achievements are beyond government’s competence. The more comprehensive the “reforms” (say, measured by the number of pages in a bill), the more adverse incentives undermining social cooperation are created and the less freedom survives. Of course, when the political goal is the “unity” of 50 percent + 1 in reallocating the minority’s rights and resources, that reality makes a great deal of sense.

Leonard Read confronted this problem in his “The Macro Malady,” chapter 8 in his 1967 Deeper than You Think, in terms of individuals who are micros, dealing with the scale of problem they have sufficient knowledge and power to alter for the better, versus government actors, less competent than we are for our micro problems, and even more so when trying to achieve comprehensive, systemic macro solutions.

Most people have been “micros”…[who] wrestle with social problems of the micro sort…. But…. Millions upon millions of people are now presuming to settle problems that are over their heads—macro problems. This accounts, in no small measure, for our headlong return to coercive collectivism … each trying to focus on a problem that is beyond his competence.

What has brought on this rash of macro addicts? Nearly everyone trying to solve problems bigger than the would-be problem solvers … and, as a consequence, push us into the coercive collectivism of the all-powerful state.

What happens when we put the government in charge of producing macro solutions? 

What to do? … Having only micro mentalities ourselves, we don’t quite know how to solve a macro problem. So, how are micro mentalities to be made into macro-problem solvers? Thoughtlessly … we turn the macro problems over to government.

What is it we really do? We do no more than give the macro problems to micro mentalities with but one ingredient added: a police force! Reduced to its essence, we give micro thinkers the gun power of a constabulary on the naïve assumption that this renders a competency to cope with macro problems. We add only force—not one iota of wisdom.

What can I do with a gun that I can’t do better without one? Nothing whatsoever!

No plague has ever destroyed or impoverished or kept from self-realization more human beings than has the macro malady.

In contrast, individual micros are better capable of addressing micro problems via voluntary arrangements which improve the world each person involved lives in, reflecting Read’s long-held belief that the way to improve the world is to improve ourselves, which will benefit both ourselves and others.

Men in a free market, a people who limit themselves to micro problems—acting individually and in response to free choice—do not make war; they create and trade … [P]eople … free of busybodies, tend to mind their own business.

Frequently promised aggregate or macro solutions, in contrast, run afoul of Thomas Sowell’s recognition that in a world of scarcity, when it comes to policy, “there are no solutions, only tradeoffs.” And ignoring essential parts of such tradeoffs, as do government functionaries who know us and our circumstances, preferences, and abilities less than we do, and care about us less than we do, is a very poor way to achieve such macro goals. Yet the attempt to do what cannot be adequately done can cause a great deal of damage when backed by government’s power to coerce people.

What, then, is the remedy for the macro malady?

The first step, it seems, is to recognize that “I”—no matter who—am a micro mentality and, thus, incapable of coping with or solving macro problems…. I must learn to tell the truth: “I don’t know.”

The next step is to realize that no other person, regardless of pretensions or the amount of force at his disposal, possesses anything beyond micro mentality himself and is no more capable of solving macro problems than I am. Required is a penetrating skepticism: trust no man beyond his infinitesimal area of competence; hold him to the very little he knows.

When enough of this kind of realistic skepticism exists, we will have no more truck with “pretenders to the throne” … [and instead experience] the therapeutic power of freedom. True, “millions of private economic decisions made independently of each other,” may not bring us out where he wants us to be; but this micro, free market, individual, freedom-of-choice process will bring millions of people as close to where each of them wants to be as is possible.

Recognizing that our increasingly complex arrangements require more of us individual micros to address the problems we are competent for, leaving less to incompetent macro political determination, which actually undermines our capabilities, is an important place to start.

The more complex the economy the more must the micro way of life be relied upon. For, as the complexity of the economy increases, man’s ability to manage it correspondingly diminishes. No self-respecting individual will concede to any other person the competency to manage his own creative life for him. Think, then, how absurd it is to expect a competency to direct the complex arrangement involving millions of lives!

That leads us back to liberty, or self-ownership, coordinated with voluntary resolutions, rather than away from it, as has increasingly characterized our lives.

The micro approach—each person operating within the limits of his knowledge and competence … its record is so remarkable and profuse … each person trying to figure out how best to improve his own little world in free and voluntary cooperation with others. Problems will fit the problem solvers and, thus, find such resolution as each is capable of.

When individuals attempt to solve problems over their heads, they are in a wild and dangerous guessing game…But when individuals are at work on problems of their own size, they will be at their best as problem solvers.