I was in law school when the Great Recession, um…..happened? Sure, let’s go with that word. It happened, or, you know, brought the global economic engine to a shuddering halt. Whatever you want to call it.
Anyway, my school offered aspiring lawyers the opportunity to take accounting and corporate finance for law school credit because they figured we needed to be able to speak a banker’s language or something. Since I enrolled in the spring of 2009, that meant smart people like my professor had had enough time to understand why the system was failing so epically, and they could teach it to us in real time. That’s when I learned about mortgage-backed securities, tranches, credit default swaps, and the other finance tools that broke the economy. Fun times.
Because I had this bit of background knowledge, I enjoyed the heck out of The Big Short when it came out several years back. I thought Ryan Gosling and Steve Carell were fantastic in it, but by far the best parts of the movie were the cutaways. Basically, the characters in the film would discuss the highly complex financial instruments I mentioned above, and then the movie would cut to a celebrity to give a quick and easy-to-understand primer about what they were.
If you haven’t seen the movie, it’s worth watching just for those. They were brilliant. I’d link to them, but they have expletives and gambling and…well…an attractive woman in a bubble bath talking about sub prime mortgages. You’ve got a Google machine, so I’ll leave that to you.
For what I’m about to describe, I wish I could pay a celebrity to create a witty explanation video. Alas, that would probably be a bad use of our dollars. So my apologies in advance for talking about the difference between microeconomics and macroeconomics, and the implications for sustainability.
Both micro and macroeconomics are social sciences that seek to understand how our economic system works, with the difference between them being one of scale. Microeconomics focuses on the individual actors within an economic system (like an individual business and its economic decision-making) while macroeconomics focuses on how the system itself functions (and so considers things like gross domestic product and inflation rates).
Both fields are taught in universities around the world, and to truly understand economics, you need to understand both fields and how they are inextricably woven together. If you focus on just one, it would be like taking a walk with just one shoe on.