The micro and macro of economics

David MoonBlog

by David Moon

My use of the term “abject failure” to describe the Affordable Care Act (ACA) in last week’s column irritated a number of people, many of whom were anxious to tell me. Notwithstanding some nasty emails, the ACA has been a massive failure.

It has also been a massive success.

From a big-picture economic standpoint, the ACA took a dysfunctional and monetarily dangerous American healthcare finance system and made it worse. The current unfunded Medicare liability exceeds $33 trillion, or three times the Social Security funding shortfall. Every step we take toward a single payer payment system digs this hole deeper.

For the 19.2 million Americans who gained health insurance as a result of the ACA (Urban Institute report), however, the law was a massive success. The hospital emergency room is no longer the only choice of a primary care physician for those people and a cancer diagnosis is no longer an automatic bankruptcy.

Like your social or moral assessment, your financial assessment of the ACA depends on your personal point of view. Are you more focused on the law’s impact on the overall economy or a subset of the economy? Therein lies the difference between micro and macro economics. Macro derives from the Latinized form of the Greek word “makros,” meaning on an abnormally large scale. The opposing term, “mikros” refers to something small or tiny.

Your choice of a macro or micro view influences your conclusion about most things.

From a macro standpoint, the best system of taxation would be the exact opposite of our current federal income tax system: simple, predictable, broad-based and flattish, with no influence taxpayer behavior. From a micro standpoint, however, many of the people who support a flat tax vehemently oppose eliminating the mortgage interest deduction, arguing that subsidizing home ownership promotes some social interest.

One man’s societal concern is another man’s special interest.

Student loan debt? Someone has to make those payments or eat the loss. If I had a big student loan, I would argue that the onerous debt service borne by college graduates places them in an irrecoverable lifetime financial hole. That’s microeconomics.

As a taxpayer and consumer, however, I understand that absolution of $1 trillion in student loan debt will result in higher taxes, higher inflation and another small US step toward becoming Greece. That’s macroeconomics.

Most people have either a macro or micro bias regardless of the issue. That is, unless the issue directly affects them, in which case most macro people quickly become micro.

The opposite pull of the macro and micro forces of some economic issues results in arguments about moral and intellectual superiority. We all understand that the opposite of a falsehood is a truth. But sometimes, the opposite of a truth is another truth.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN)