Econ 101

May 7, 2019

We need to understand both microeconomic sustainability (what it takes for a single business, like Interface, to become sustainable) and macroeconomic sustainability (what a sustainable economic system would look like).

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 subprime 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.

I believe the same holds true for the world of sustainability. We need to understand both microeconomic sustainability (what it takes for a single business, like Interface, to become sustainable) and macroeconomic sustainability (what a sustainable economic system would look like).
 
Unfortunately, these fields aren’t being taught in universities around the world, at least not universally. And even where sustainability is being studied, most of it is the micro-scale. That is important to be sure, but I’m a bigger fan of wearing both of my shoes. Looking ahead, I believe the next frontier in environmental sustainability is developing the field of macroeconomic sustainability.
 
If this has whet your appetite even without a celebrity cutaway, then I think you’ll enjoy chapter 10 of Mid-Course Correction Revisited. It’s a foray into what the prototypical economy of the 21st Century might look like, and I think building that economy might be the most important task facing humanity in the next 80 years.
Comments