Chapter 20
Issues in Macroeconomics

What is the definition of "recession"? — When your neighbor is out of a job; "depression"? — that's when you are out of a job.
Old joke
California is a garden of Eden, a paradise to live in or see, But believe it or not, you won't find it so hot, If you ain't got the do re mi.
Woody Guthrie


  • Understanding the "big picture" of the economy
  • What a government did before the Great Depression
  • Alternative economic visions of the Promised Land


Macroeconomics deals with large, aggregate, and abstract-sounding entities, such as total unemployment, the general price level, the interest rate, total production, the national economy, world markets. Why do economists study such aggregates, abstract though they may be? Because the major macroeconomic aggregates make a big difference to human well-being. As Woody Guthrie said famously in a song, even life in California/ ain't that great/ if you ain't got/ the do re mi-if you ain't got the dough, the dollars, the income to really live in it. His song wasn't referring just to you-he means, as we say in Chicago, "all o' youse guys"-everyone.

For twenty years after high school Mary and Carl had lived a comfortable life in a Pennsylvania steel town. Carl had recently become a supervisor at the plant and Mary had a part-time job as a secretary there. They had bought a modest home, and went on a two-week camping trip every August.

Everything changed in 1992 when the steel plant - the only one in town - closed down. Mary stayed on for a while to help with the paperwork, but Carl lost his well-paying job for good, at age 39. There was little else for him to do in town. The only jobs available paid a third of his previous salary, not enough do re mi to cover the mortgage on the house. Mary and Carl applauded the election of Bill Clinton as president in 1992. Mary said, "Maybe Clinton'll get the economy going again."

People often look for the causes of job loss in the immediate environment. Mary and Carl might, for example, blame management for closing the plant, or blame themselves for not getting out before they were forced out. If that diagnosis is right, the remedy would be better management or better anticipation of the future.

Yet the causes of the economic problems faced by individuals are sometimes not local at all. The entire economy may be doing badly, and Mary and Carl may be just two of many victims. The remedy for "getting the economy going again" would then be well beyond local control.