Microeconomic Explanations for Recent Macroeconomic Trends

Posted on Jan 31, 2009
Economists often (understandably) get swept up in the world of macroeconomics, focusing on aggregated market performance indicators like stock indexes, GDP and employment rates. When you're monitoring fluctuations in the economic output of an entire country, it's easy to forget how exactly these numbers are linked to Joe Q. Citizen.

We must remember to step back from the stock ticker feeds and attempt to interpret the numbers at a microeconomic level. We must reconcile it with what we see at a personal and community level, but how can aggregated numbers be reconciled with the micro-scale evidence surrounding us?

This can be a scary proposition to an analyst, who has been hired for their special ability to crunch numbers. Statistics are completely invalid if sample group is too small. We must take a more holistic approach, and remember that these types of observations only offer clues and are not to be taken as standalone evidence.

I've attempted to explain a few current macroeconomic trends below, by using observation and microeconomic logic (AKA common sense).

Car sales are down! Why?
Cars are more reliable than ever.
Even the cheapest cars built today last far longer than the equivalent did 20 years ago. Of all my friends who drive, I can only think of one person who has bought a car in the last 3 years. My dad has a '93 VW GOLF which still handles a 200km every day. Were many people driving 16 year old cars from 1979, back in 1995?

People are finding viable alternatives.
More people are cycling and taking transit in Toronto than ever before. Fuel prices are higher than ever,and traffic is worse than ever.

Electronics sales are down! Why?
No one needs a new computer.
Computers may double in speed every couple of years, but we've reached the point of diminishing returns. Moore's law may hold true, but it no longer applies. In the 90's, we were paying more for computers and getting a new one every couple of years. The fact is, when a computer takes 5 minutes to load a program, a computer that can perform calculations twice as fast is a significant improvement - one worth paying for! As I write this, I'm using a 3 year-old laptop I bought for $600, which I have no intention of replacing any time soon. The impact of being able to load FireFox in 0.1 seconds instead of 0.2 is not significant enough for me to part with my hard-earned cash.

Everyone already has a TV.
The movie-buffs all upgraded to a HD home theatre years ago and aren't intending to upgrade any time soon. The casual watchers admit they can't see the difference HD makes and are still happy with their $300 32" TV the bought from Wal-mart 10 years ago. I see parents removing TV's from children's rooms. I see people replacing their TV with a computer. I see ratings on crappy reality TV shows continuing to drop and people starting to care even less about televised sports.

New technology just isn't life changing, like it used to be.
A portable music player will never affect your life in the way the refrigeration does. Gone are the days when new technology meant a significant life style change, or even a significant time savings on daily chores. Even many quite useful technologies are not useful for EVERY consumer anymore. As I told the sales guy at Futureshop: "Stop trying to sell me a GPS! I even don't remember the last time I was lost! My $5 map of Ontario is just fine, thanks."

New technology isn't always better
My fancy new smartphone is, in many ways, less functional than my old "only-for-calling" flip phone. I will not be upgrading very soon. I've also become more cautious of "upgrading" other things in my life. I have no requirement for my car, for example, to have a 500HP engine.

Why else might personal spending be decreasing?
We have an aging population.
As the average citizen ages, spending related to them decreases. This is also known as the "How do I buy a present for someone who has everything?" factor, made abundantly clear when I try to find something to buy for my Grandma at Christmas.

The Eckhert Tole Factor
People who buy all the toys often realize sooner or later that their life is still missing something. Stressful situations like losing your job often push people toward self-help, where they learn to seek fulfillment outside of material possessions. There seems to be an increasing number of recovering capitalists lately, and poor Christmas sales are the result.

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Mike at Chance Cove, NL - photo by Angelina Friskney, http://angelinafriskney.com