Last week, Dr. Skip Mounts began his From the Murphy Center column with an ironic quip. He wrote that while he believes “there is no such thing as macroeconomics,” he wanted to talk about it anyway. So he did. The entire column after that introduction was about macroeconomics.
My colleague’s quip might have appeared to be a playful inside joke among economists, but behind his quip is the most important insight that economics offers.
Economics is fundamentally a way of thinking about the choices individual people make. People choose among alternatives. Economics pays careful attention to alternatives. Good economics thinks about every choice in terms of alternatives.
Of course, people make the bulk of their choices in relations with each other. Economics thinks long and hard about choices of that sort.
For example, consider the market for ice cream in the U.S.
In 2019, people in the U.S. consumed 4 billion pounds of ice cream. In addition to the millions of buyers, the U.S. ice cream market consists of many thousands of retail sellers, wholesalers, producers and their workers. Thousands of other firms are associated with the market: dairy farmers, transport firms, producers of freezers, cartons, ice cream scoops, dispensers, conveyor belts, sugar, flavorings, and on and on and on. The amount of resources that are in some way engaged in the ice cream market is staggering.
Ever go to an ice cream shop that was out of ice cream? A grocery store that was out of ice cream?
Every once in a while an ice cream shop might run out of a flavor, and occasionally some ice cream goes to waste. But those glitches are short-lived and utterly puny compared to the amount that is produced and consumed.
And consider this. No one designed the ice cream market. There is no plan for the market. Nor is there a goal. No one oversees or manages the market to make sure that the quality, flavors and amounts of ice cream that buyers want are produced, and produced economically.
The ice cream market is millions of individual people – buyers, entrepreneurs, workers and resource owners – each of whom makes their own choices subject to their own unique circumstances.
Millions of people and vast resources engaged in an activity for which there is no design, plan, goal or oversight. Yet the result is not chaos but order: enormous amounts of a product whose quality, variety and economy in production improve year after year.
Now, take the intricacy, complexity and magnitude of the network of localized decision-making in the ice cream market and multiply it by, oh, somewhere around a gazillion, and you have the economy as a whole.
And what is true of the ice cream market is true of the U.S. economy. No one designed the U.S. economy. It has no plan or goal. And no one – not the president, not Congress, not the bureaucracy, not the Fed, not “elites” or big corporations – oversees or manages the U.S. economy.
The most important insight that economics offers, the insight behind Dr. Mounts’ quip about macroeconomics, has two parts. The first part is understanding that a market or market economy is an enormous and enormously complex network of individual people making countless decisions in their own local circumstances. The second part is understanding why such arrangements, with no design, plan, goal or management, produce order and enrichment rather than chaos and stagnation.
When that insight is disregarded, economics goes wrong. We’ll discuss that in my next column.
Reg Murphy Center