How Micro Economists Could Crush Covid

For over a century macroeconomists have dominated the field of Economics in the Western World. I predict this is going to change in this century and that microeconomics will make a come-back.

The sub-field of microconomics itself was actually founded decades earlier than the sub-field of macroeconomics by a Cambridge College professor in England named Alfred Marshall.

In the late 19th century, Alfred Marshall wrote his famous book, Principles of Economics, and in his classrooom Marshall taught microeconomics to his students.

Marshall invented the field of microeconomics in reaction to the popularity of Karl Marx’s book, Das Kapital, a book that was critical of the capitalism that Adam Smith had advocated in Smith’s earlier book, the Wealth of Nations, published in 1776, the year of the American Revolution.

Marshall’s microeconomics teachings shunned the simple arithmetic examples that Karl Marx relied on to support Marx’s theories that rich people were cheating the factory workers who had made them rich. Fast forward to the next century!

In the early 1930’s, the United States fell into a GREAT DEPRESSION, far worse than any we have seen since.

That’s when Lord John Maynard Keynes, a student of Alfred Marshall’s at Cambridge, created and taught the sub-field of macroeconomics.

Keynes overcame Marshall’s reluctance to use arithmetic by using a form of mathematics called ‘calculus’ to support Keynes theories. Keyne’s theories became the mainstream thinking of the economists during the Great Depression and afterwards.

Meanwhile in the mid-twentieth century, conservative followers of Adam Smith’s economics at the University of Chicago economics department were still using simple arithmetic just like Karl Marx had done.

For almost a hundred years now Lord Keynes’ flashy macroeconomics and ‘econometrics’, along with President Franklin Roosevelts’ “New Deal”, were considered successes that saved the U.S. Economy in the mid-twentieth century.

Nevertheless a minority of conservative economists on both the West and East Coasts of this country at Stanford University, University of Virginia and other Southern colleges, and George Mason University near Washington, D.C. published books which challenged the ideas of the Keynesian economists.

Some of these minority economists’ arguments were quite credible, others weren’t.

I know because I created numerous back-of-the-book indexes for all kinds of economics professors for over twenty-five years in the late 20th century: Keynesian liberals, Chicago conservatives, and ultra-conservative libertarians.

Macroeconomics and Microeconomics – The Differences

The economists that we see on all TV news in this century are all macro economists.

Macroeconomics is the study of national economic systems.

Microeconomics is the study of various parts of those national macroeconomic systems: e.g. the automobile industry; the consumer goods sectors, manufacturing, the services sectors, etc.

Conservative Adam Smith followers and libertarian economists are on Fox TV. The Keynesian economists are on CNN and MSNBC.

Microeconomics is rarely seen in TV news other than in relation to U.S. financial markets.

Why Macro Economists are Failing Us

In the U.S., liberal and conservative macro economists have been battling for a century over whether a stimulus package paid to capitalists for increasing the supply of goods and services or creating a stimulus for increasing the demand for consumer goods and services is the only way save our economy from failing.

The problem both of these sides have with providing stimulus on a grand national macroeconomics scale is that we wind up spending huge sums trying to either pump money into the pockets of rich people (Republicans) or working Americans (Democrats) along with others (Independents).

The U.S. can get away with this, because beginning in the last century the U.S. became the major monetary power of the entire world. We can print U.S. dollars at will and sprinkle them out to the wealthy and/or the poor as much as we like while going deeper into debt.

While the two political parties are battling over who will get our taxpayer money, neither side can possibly win in this battle. Each side (demand or supply) can  be the right answer at different times. It all depends on the problem being addressed.

Demand and supply are two sides of the same coin. Both sides, supply and demand, working well together are necessary for economic recovery from a downturn in the economy. Fighting over this split in opinions is futile.

How Micro Economists Might Change Things

A few weeks ago on October 25th, I caught Fareed Zakaria’s Sunday Morning TV show. At the end of the show, Fareed discussed how China, our sometimes ally and sometimes enemy has managed to bring COVID-19 under control and open up its economy again.

As a result, Chinese people are going out to restaurants, movie theaters and concerts—even in Wuhan where the pandemic started.

In many many other developed countries there are spikes of COVID-19 now. That includes the U.S. We are having to pull back and losing even more parts of our economy.

Fareed siad that “the International Monetary Fund (IMF) says China will  be the only major country to experience positive GDP [Gross Domestic Product] in the year 2020.”

In the first quarter of this year China’s GDP was minus 6.8 percent in January. By September of this year the Chinese increased growth in their industrial sector by 6.9 percent to end their third quarter with a positive GDP of 4.9 percent.

Although our country is one of the 10 major economies in the world, and we had an economic boom in the third quarter of this year, rising GDP 33.1%—this boom came after a 32% decline in the second quarter of 2020. Thus, the two sectors have cancelled each other out.

Due to COVID-19 we are not on track for a positive GDP because unfortunately, COVID-19 has also had a boom that is still creating devastating consequences for millions of Americans.

So How Did China Crush Covid-19?

So how did the Chinese manage to get their economy really booming? They did what the U.S. should have done back in January of this year.

They did what both liberal and conservative macroeconomists in the U.S. should have recommended. China created a stimulus for one important microeconomic sector in order to re-start their economy.

China’s government targeted China’s industrial sector. It drilled down into that sector and aided specific manufacturing companies within their industrial sector with stimulus monies.

The Chinese government helped these chosen companies start up or expand. In particular they focused on building infrastructure within China.

In this way the Chinese government put people back to work, AND put money in workers’ pockets. By August Chinese workers were boosting their comsumption of goods.

Moreover, China spent far less money on their targeted stimulus packages than the United States did on its national stimulus programs to control COVID-19.

So What We Can Do Differently Next Year?

Governmental structures in China and the U.S. are completely different. And we do not want China’s model of governing!

The Chinese government controls its people much more tightly than we Americans would stand for. It has been doing this for millennia.

Their government owns their country’s  corporations, and they have virtually no free-market stock exchange where the rich can get richer either.

However, their currency may soon outstrip ours as the world’s favorite currency if our economy fails next year. We can’t afford to let this happen.

Despite our differences from the Chinese way of governing, our U.S. President did and still does have the power to put our manufacturers to work on controlling COVID-19 far faster than we have done. Done safely this would have put millions of people to work rather than leaving them out of work.

This is what World War II enabled Franklin Roosevelt to do with the shipyards and factories in the the 1940s. But in 2020 we did not band together to fight our war on COVID-19.

Nor in his four years of being President did Donald Trump and Congress do much of anything to fill Trump’s promise of rebuilding America’s infrastructure.

If we had built that badly needed infrastructure this year we could have put people to work again and even begun the fight against climate change already.

We could have funded high-speed, safe rail transportation to bind American families closer together, provide alternatives to air travel and buses, and strengthen our tourism sector.

We could have repaired roads and tracks and ports. We could have cleared forests and done back burns and built seawalls to protect our land.

Under the umbrella of infrastructure we could have managed to give every American who needed it a high speed computer along with a good, safe, education, and perhaps even modernized our methods of voting to provide us faster results of elections.

We could have resurrected our manufacturing sector and made the U.S. less reliant on imports from countries we don’t care to trade with.

Instead, we built a truly an amazing services sector on the backs of poorly paid workers in urban areas in order that a few in this country may become insanely wealthy.

In particular, in our big cities we have built a huge restaurant sector – a sector that is largely a luxury, and not a necessity. Now that sector is like a dinosaur on its last legs. We have not built a strong enough food infrastucture to feed all Americans in a time of pandemic.

This is why joe Biden’s promise of boosting the alternative energy power sector to replace our fossil fuels sector makes sense. Like building a better food infrastructure, solar and wind energy could put a lot more American workers back to work, with the proper retraining they’d need.

However, freedom from toxic energy sources will probably take a longer time commitment to achieve than Biden has planned, and our climate may hinder as well as help us in meeting our goals. Phasing off fossil fuels more slowly seems a practical solution, as does not requiring all Americans be on a public health plan.

An argument for fracking safely is that even China is still relying on coal power to some extent while it is building gigantic forms of alternative energy for its county as well as helping build roads across Central Asian countries as rapidly as it can to foster more trade in Asia.

We could help build roads too for our neighboring countries—instead of that ugly wall that’s cost billions of dollars and harmed hundreds of thousands of good people who had nowhere else to go.

We could eventually be at a place in time where building roads and railways to let immigrants more easily come here can make our country great again, especially if we resurrect our manufacturing capabilities for products we can trade with other countries.

Ressurecting our manufacturing capabilities would not only make us more self-sufficient, it could create trade opportunities between ourselves and many other countries on this continent and South America as well.

Given that many other countries are actively working hard to cripple our country’s unique from of democracy, we need to make strong alliances with neighbors on to the North and South of us to safeguard our own country

And certainly we’d fare better selling more US exports to other countries rather than paying the expensive taxes on imported foriegn imports during a tariff trade war with other countries!

To summarize, the United States has hundreds of microeconomic sectors, if not thousands. If our economists will weigh in on particular sectors likely to excel in quickly opening up safely and selling goods and services to consumers here and abroad, and our government would subsidize those companies we could crush COVID-19 and put unemployed Americans back to work and help new American businesses to grow or surviving ones to open back up.

1 comment so far ↓

#1 Mara Lynn Keller on 11.17.20 at 12:57 am

dear Nancy, thank you for this thoughtful essay! You helped me learn some basic economics, and you provided some major ideas for moving our economy forward in the midst of the pandemic. I like your micro-targeted infrastructure and green energies plans.

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