Tuesday, June 10, 2014

Micro- and macroeconomics

A commenter has asked me why we study microeconomics and macroeconomics* separately. It's necessary but not sufficient to simply say that microeconomics is the study of households, and firms**, and macroeconomics is the study of the national economy as a whole. After all, while physicists do specialize, we don't have "microphysics" and "macrophysics" as separate disciplines, even though physicists study everything from quarks to planets to galaxy clusters to the whole universe. It's all just physics.

*There are actually three levels of economics: micro, macro, and international economics.

**Households and firms usually are not internally organized by markets, although there are many economists who use economic techniques to study intra-household and intra-firm behavior.

Economics is different because economics is more complex (has more independent "moving parts") than physics, and has more feedback mechanisms. Specifically, although they are connected, there are features about the economy as a whole (macro) that have such a radically different character than features about the economy of individuals (micro) that we must think about them in radically different ways. A more apt analogy is the difference between biology (the study of individual species and organisms) and ecology (how organisms interact). Obviously, ecology is intimately linked to the biology of the species, and in some sense emerges from that biology, but the conceptual tools are very different between the two fields.

Economics in general is the study of trade-offs. When someone has to give something up to get something else, economists spring into action! The fundamental difference, therefore, between micro and macro is what is being traded off, and how those trade-offs are measured and conceptualized. Fundamentally, microeconomics is about relations between actors in a national economy, but there is nothing for a national economy to be relative to. (Again, international economics complicates this framework a bit, but by and large, most large national economies such as the United States can be treated as closed systems with a small correction for net imports and exports.)

The biggest difference is flow. Micro is linear: a household or a firm has an income on one side and an expenditure on the other side, with stuff coming in or out in the opposite direction. In contrast, macro is circular: money circulates between households and firms, with labor and stuff circulating in the opposite direction.

Another difference is money. A household or firm can run out of money; the national economy cannot run out of money. While some individual household or firm might not have money (savings or income), and is therefore limited in what they can consume, the money is always somewhere in the national economy. In micro we study how households and firms allocate their money, how they make choices constrained by the money that they have (savings) and that they expect (income). In macro, however, because the money is always somewhere, and the total amount of money is (more-or-less) constant, so we don't conceptualize trade-offs as being constrained by money. Instead, macroeconomics is concerned with the total real productivity and consumption of the economy. Indeed, there is presently a debate between classical/neoclassical macroeconomists, who think that money doesn't matter at all (it's just a lubricant; you have to have some, but adding extra lubricant won't make your engine any more powerful), Keynesians (classical, neo- and paleo-), who think that money does matter (prices not as much), and monetarists, who also think that money and prices matter, but in a different way than Keynesians. In contrast, there are exactly zero microeconomists who think that the money a household or firm has doesn't matter.

Similarly, individual households want to accumulate money. They want to optimize their money income and/or their profit. In macro, however, we can't make a profit; profit is always relative; the net profit for the economy as a whole is exactly equal (as a boring accounting identity) to whatever new money we have put into the system in one way or another, i.e. mining gold and silver or printing dollar bills.

Another difference is what is being traded off. In micro, we trade off between production or consumption of different items. I can buy better food, or I can pay more in rent. I can choose between oranges and apples. A household can work more or have more leisure. A firm can produce more or fewer oranges or apples, and it can choose between more capital (machines) or more labor. In macro, however, all there is is one big lump of everything; generally, we don't worry about the trade-off between everything and nothing (nobody wants nothing). Instead, the big trade-off is between consumption, producing stuff we'll use today, and investment, producing stuff that will produce stuff we'll use tomorrow. In macro, we also think about trade-offs between the the large-scale entities in an economy: all households (and sometimes all working households vs. all investing households), all private productive firms, all financial firms, and, of course, the government.

There is also a controversy in macro as to whether the economy as a whole can fail even if all the parts are working correctly. Classical and neoclassical economists say that if all the parts (households and firms) are working, then the whole economy is working by definition; if you don't like how the whole economy is working, then one or more of the parts are failing. For example, the classical economists attribute the Great Depression (and the current Lesser Depression) to a combination of malinvestment (we built too many factories to make stuff people didn't want), structural unemployment (workers didn't have the skills that firms wanted), irrationality (workers refusing to accept lower money wages even though prices had fallen, so their real wage had increased), and government misregulation (in the extreme, some assert that all government regulation except enforcing contracts is misregulation). Monetarists lean towards the classical view in this regard: they attribute problems in the whole economy to failures of the banking system or government regulation of the banking system. In A Monetary History of the United States, Milton Friedman and Anna Schwartz make a compelling case that errors by the Federal Reserve in regulating and supporting the private banking system at least deepened and may have caused the Great Depression. In contrast, Keynesians assert that all the parts of the economy can be working correctly in micro terms, but the economy as a whole can still fail, measured by cyclical or involuntary unemployment.

Again, in contrast, there are exactly zero microeconomists who claim that all the parts of a firm can be working correctly, it has sufficient capital and labor in the optimal proportion, it has a market for its correctly-priced product, and its workforce and administration are competent, and yet the firm can be unprofitable.

So, basically, the individual household and firm are conceptually very different from all the households and firms in a national economy. Therefore, we divide up economics into micro and macro.

Sunday, June 01, 2014

In defense of "Do What You Love"

Yes, you "should"* do what you love, as your career and your profession. True, not everyone gets to do what they love, but that is a social failure, not a personal one. Marx's chief complaint against capitalism is that even when it's working "perfectly," it alienates workers from both the product and from the process of production. Both the product and the work are no longer valuable in their own right; they are just an instrument for the capitalist to accumulate more money, and for the worker to earn wages to consume. A communist society, as Marx declares in Gotha, can occur only after, among other things, "labor has become not only a means of life but life's prime want." The problem is not that the workers' sacrifice is not sufficiently rewarded, the problem is the sacrifice itself. Instead, We should strive for a society where everyone can do what they love. In the meantime, those who are privileged enough to actually be able to do what they love have no cause to feel guilty or ashamed for just doing so.

If you'll forgive using normative language to talk about just doing what you want.

Doing what you love is a positive privilege: it is something that everyone should have, but only a few actually do have. It is not a negative privilege: it is not something, such as the ability to break the law with impunity that no one should have but some do, such as the ability to break the law with impunity. Similarly it is not, at least in the ideal case, something, such as "leadership," that if a few have it, others are necessarily excluded. Doing what you love is like being able to go almost anywhere without fear: as a white man, I have this privilege; women and people of color do not. The way to correct this privilege is not to force everyone to live in fear, but to eliminate the fear that those without the privilege have to live with. The cure for any positive privilege is not to condemn the privilege, but to extend it to everyone.

Positive privilege becomes problematic when people attach other attitudes to it. I have been able to do what I love my whole life, and I have mostly been relatively well-paid for doing so. But I have not had this privilege because I am extraordinary or in any way better than anyone else; I was just lucky. My privilege is not evidence of my innate superiority, either of ability or character. I was born white, male, American; I was well-fed, well-educated, and socialized with middle-class manners; I had a talent and love for a field, computer programming, that for a long time was highly in demand.

Not everyone agrees. In In In the Name of Love, Miya Tokumitsu believes that doing what you love is selfish and exploitative. But Tokumitsu is long on condemnation and short on quality analysis. For example, she holds up Steve Jobs as an epitome of doing what you love. She quotes Jobs' 2005 Stanford graduation speech:
You’ve got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.
According to Tokumitsu, this quotation indicates that Jobs was "portraying Apple as a labor of his individual love," which "elided the labor of untold thousands in Apple’s factories." But there's a lot of distance between Jobs' words and Tokumitsu's interpretation. Maybe other evidence shows that Jobs really does, as Tokumitsu puts it, violently erase the contributions of thousands of engineers, designers, and factory workers to making Jobs' love a reality, but there's no evidence that Jobs doing what he loved, or framing his own work as a labor of love, is the cause of that violent erasure.

Tokumitsu also assumes that only the elite's "creative, intellectual, socially prestigious" work can possibly be lovable. All else is "repetitive, unintellectual, undistinguished." But this characterization only betrays Tokumitsu's ivory tower elitism. (Tokumitsu holds a Ph.D. in art history, but I'm unable to determine his or her own job; dollars to donuts it's neither repetitive nor unintellectual.) There's no intrinsic reason that any human labor must be repetitive or unintellectual, nor any intrinsic reason why creative, intellectual work should be valued more than any other: the "antithesis between mental and physical labor" (Gotha) is not, according to Marx, intrinsic, but an artifact of capitalism. I know construction workers who love construction, plumbers who love plumbing; I can even imagine factory work, properly constructed, can be rewarding and fulfilling. Perhaps there are some jobs that are unlovable (cleaning other people's toilets comes to mind), but those jobs should not be glorified; they should either be done by machines, shared democratically rather than economically, or at least paid extremely well. I would happily be a janitor for $100,000 per year, and I would clean toilets with love.

In A Life Beyond ‘Do What You Love’, Gordon Marino offers an explicitly Kantian critique. According to Marino, doing what we love is only one dimension in our thinking on our choice of work. Marino references Martin Luther King's metaphor of length, breadth and depth: our own desires, service to the community, and service to the "transcendent." It would be a mistake, argues Marino, to accept as "faith that my likes and dislikes or our sense of meaning alone should decide what I do [emphasis added]." But Marino's analysis doesn't work. First, "service to the community" is neither opposite nor orthogonal but part of doing what you love. We are inherently social; we are not social because of some external moral norm. I presently work as a writing tutor not because I love reading the work of unskilled writers, but because I love helping hundreds of writers every year become more skilled, more sophisticated, and more expressive. What I love is service to the community. And (with apologies to Dr. King) the notion of service to the "transcendent" is nonsensical. The only coherent, existent thing that can demand "obedience and the willingness to submerge and remold our desires" is the ruling class du jour.

Yes, it is possible to trivialize and coopt "do what you love." Capitalism is notable for trivializing and coopting everything. But just because capitalism has trivialized and coopted marriage and family, as Marx and Engels observe in the Communist Manifesto, does not mean that we should stop partnering and having children. It is notable that both Tokumitsu and Marino do not offer any evidence that popular culture actually trivializes the idea of doing what you love: it is the concept itself they charge is trivial hedonism.

But it is a mistake to interpret "do what you love" as mere hedonism, as just the expression of "likes and disklikes." The ethos is do what you love (and love what you do), not do what you like. To love something is to dedicate everything you have and more to it, and to do so because you want to. And love is to cherish everything, not just the pleasant bits. To love something requires the highest discipline. Love requires sacrifice, but it is the sacrifice of the lower to the higher. But it is your own higher and lower, not the judgment of some self-styled philosophical or theological authority.

Marino interprets (fairly, I think) Tokumitsu's essay as saying that "the 'do what you love' ethos . . . degrades work that is not done from love." But it's true: work, indeed anything, not done from love really is degrading. No, we should not ignore or erase those who cannot do what they love, but neither should we glorify doing what you hate. That some must do what they hate should shock our conscience, should arouse our righteous indignation. Yes, we must sometimes do things because they must be done, however much we may hate it, but that is a problem to be solved, not a condition to be excused, much less glorified. Whether man or nature enslaves you, to dedicate anything, much less everything, to what you hate is slavery.

We need to build a society where everyone can do what they love, a society where labor is "life's prime want." As much as capitalism tries to trivialize it, "do what you love" is fundamentally subversive, even revolutionary. It is the antithesis of Christian slave morality, work for God (i.e. His representatives in the ruling class); it is the antithesis of work to live. It is the highest ideal and the liberation of all humanity.