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Macro Economy

A panorama shot of a canyon. The foliage clinging to the rock doesn’t get much pub but the scene as a whole can be measured and better understood – in an economist sort of way (economists don’t get it right very often, that sort of way). The plants bursting from the rock seams are individual people and businesses. The canyon is the aggregate total.

Marginal

Economics cares about the margins; that is, what happens when one extra unit of something is tacked on. We all should strive to be utility (happiness) maximizers. In the case of diminishing marginal utility we know that, eventually, consuming one more piece of Reese’s Peanut Butter Cup ice cream cake adds zero happiness to your life. In fact, after a few pieces it probably starts to take away happiness.

If economics teaches you anything, let it teach you only to do something if the marginal utility gained is greater than the marginal cost.

Marginal Propensity to Consume

How much someone will spend of their disposable income. If your marginal propensity to consume is 0.25, you will spend a quarter of your disposable income.

Market Failure

When markets go rotten. Some key reasons why markets fail are to lack of competition and asymmetric information. Ideologues blame market failure as a justification for government intervention but rarely identify the key reasons why markets actually fail.

Micro Economy

The sum of the parts may just be greater than the whole. The individual people and businesses hired a PR agent in micro economics; also an attention giver. Micro economics is concerned with individual actions by people, city, state, and federal governments, organizations, and firms. The attention is making me blush.

Mixed Economy

A hybrid economy where both the private sector and the government own and operate firms.

Misery Index

Misery loves company so this index merges the best of both: unemployment and inflation. The former keeps the willing from making a living and the latter devalues currency while eroding purchasing power.

Mobility

Technology keeps entrepreneurs more mobile by the second but not all factors of production are so lucky. Land is pretty locked in to its current locale while labour can only be moved around a little if it’s paid enough.

Capital is extremely mobile from one side of the globe to the other, exchanging between currencies if necessary.

Monetarism

The belief that a Central Bank, along with government tax and spending policy, can control levels of demand in an economy by manipulating the money supply.

Some economists argue that it’s the Central Bank that causes unsustainable asset bubbles; that when Central Bankers set interest rates instead of allowing the market to set their own, resources are allocated in an unhealthy and sometimes undeliverable way.

Written history has been generally kind to President’s Herbert Hoover and Franklin Delano Roosevelt for their interventionist policies leading up to and during the Great Depression. This makes some economists scratch their head. They feel there is compelling evidence that government borrowing and spending actually prolonged and deepened the Great Depression. Some of the same economists believe that historians are dedicated to preserving Hoover and FDR’s prestige due to the historian’s personal love for state planning.

Something’s ripe with corruption.

Monetary Policy

A central bank’s manifesto to control levels of demand in an economy by manipulating the money supply.

Some economists argue that it’s the central bank that causes unsustainable asset bubbles; that when central bankers set long run interest rates instead of allowing the market to set their own, resources are allocated in an unhealthy and sometimes undeliverable way.

Central banks can’t wave a magic wand or erase an interest rate with a number two pencil. In the U.S., the main tools at the Fed’s disposal are the buying and selling of securities and the Treasury’s printing press. The Fed manipulates the money supply by either buying securities like a Treasury bond and injecting money into circulation, or selling securities they already own to take money out of circulation. If you believe Milton Friedman inflation is strictly a monetary phenomenon. This means the Federal Reserve has power over inflation through manipulating the money supply…bone-chillingly powerful. The Fed works closely with the Treasury who owns the printing presses creating new dough. If large amounts of new cash are being injected into circulation, the Treasury prints entirely new money for the Fed. Every time a new dollar is printed, the dollars already in your paycheck, bank accounts, and retirement are automatically worth less. They don’t check with citizens before they devalue your money.

The role of the Fed is expanding. The Fed now makes direct loans to private industry in addition to depository institutions. The Fed bank has gone national!

Money

Without money, it would be hard to make it rain.

Money Illusion

The trick that allows people to believe that inflation equals wealth. It doesn’t. If your wages go up to meet monetary inflation, your purchasing power remains the same. Some economists argue housing inflation and stock market inflation are not real wealth either. They would say that real wealth only comes from infrastructure and production.

Money Supply

All the money circulating in an economy. Milton Friedman advised us that inflation is a monetary phenomenon, namely the creation of new money. Because over 95% of the U.S. money supply is electronic only, the numbers dancing on computer screens have various levels of liquidity (the ease of converting assets into cash money).

Monopoly

A game that takes way too many hours to complete and encourages consumption of Mickey D’s; also a firm that controls an entire marketplace. “FINISH HIM!!”

Monopsony

A market that may have plenty of producers and sellers but only one buyer. The one buyer can use their unique position to negotiate price, playing the sellers against one another. Game theorist extraordinaire!

Moral Hazard

A spectacle having nothing to do with morality, this describes what happens when people are insulated from risk. The great bailout wave of 2008 and beyond is an example of moral hazard. If certain firms or industry’s believe the government and taxpayers will bail them out, their risk of failure is greatly diminished. If a person doesn’t need to concern themselves with failing, the decisions they make will be much different…perhaps more reckless or lackadaisical.

Moral hazard occurs at all levels. If a person applies for and is given health insurance, they might go snowboarding or walk across liquid hot magma more often then they would without the risk insulation from high medical bills.

Moral hazard is another principle reason markets can fail. See my economic solution for helping millions of uninsured Americans secure health insurance.

Multiplier

The money butterfly effect. Dollars travel far once they’re let out of their cage. Makes you want to wash your hands a little more often.

Consider a private investment in air-compressed powered cars. The investment funnels dollars to the producers of all the car parts, utility companies providing electricity, marketing agencies creating the brand strategy, and additional disposable income to car buyers who now enjoy the equivalence of 120 miles per gallon. Dollars keep churning.

The multiplier effect is theoretically infinite.