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Johanna Martinsson's picture

A reader's response to the blog post, Time to Learn How to Act 'Macro' while Talking 'Micro':

'Happily, we have an active international economic forum on economics that is micro and macro. It is called the marketplace. In it, billions of people communicate every day in billions of transctions where they vote with their nyra or dollars or yen. In what nobel laureate F.A. Hayek called spontaneous order, this establishes priorities and values based on supply and demand. A billion people cannot be bested by a handful of even the smartest planners.

Schooled in macro, planners learn in university to tweak their computer models to get the right outcome, when in the real world they are far less capable of tweaking the incentives to manipulate the decisions of multitudes. Increasing savings rates, to take a very crude example, is easier to do on a computer than across a nation or a planet. So the market tends to outguess and outperform planners.

The market, said Hayek, is the biggest and most efficient communication system on earth, and it most tends to malfunction when subjected to illadvised or hamfisted planning. Bad money, and central banks pumping out credit, can confuse markets temporarily into making bad decisions, as we see recently, but they readjust. The readjustment comes harder when governments keep trying to cure a hangover with more gin. This is a parable for we communicators lest we get arrogant and stop listening/dialogue.'

S. Masty