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Understanding Micro-Macro link from the lens of Corona Pandemic 

by Arvind M

  1. Introduction 

            This article aims to explain the links between micro and macroeconomics in the context of our present corona pandemic to prove the assertion – the recovery of the global economy is dependent on the revival of specific local systems chosen based on their relational status in the global economy. The proof is constructed by reflecting on the primary reading “micro-macro link in heterodox economics by Claudius Grabner and Jakob Kapelle” and exploring or analysing its workings in our present pandemic context through evidence and examples. 

  1. Analysis of the situation

            The year 2020, in spite of its initial aspiring economic prospectives, infested with COVID-19 had tumbled down into an economic dip. This unheralded biological phenomenon aka the coronavirus which is claimed to spread through direct human contact (respiratory droplets) has  forced nations to their knees by necessitating the severing of any economic movements that involved direct contact among human beings. Thus the nature of this crisis could be described as a biological pandemic-induced economic crisis. 

Nations were put in a place to choose between life and livelihood (economic stability at the cost of endangering life). Most economies with deep-rooted globalisation, being heavily dependent on foreign trade ties, exports and imports were forced to lock down their borders either to control the inherent spread like China or to protect themselves from being further infected or both. The pandemic has also affected several aspects of the national economies. For example, most physical labour-intensive industries were rendered completely or partially unfunctional leaving millions of their working members unemployed. In numbers, statistica has estimated about 23.52% of labour’s workforce were left unemployed during the initial months (April-Jun 2020) of the pandemic in India. Similarly, the transportations and logistics industry saw a critical drop in consumption. The volume of transactions of the Inland logistics players in India had seen a 10-15% drop during the financial year . Likewise, medical systems are struggling with insufficient manpower and infrastructure to support the unexpected surge in the volume of infected cases. Head of the IMF, Kristalina Georgieva has said the world faced (in 2020) the worst economic crisis since the Great Depression of the 1930s. The world economy (a simple aggregation of all national economies) is noted to be on the verge of or at the initial stages of a global crisis relatively bigger than the 2009 crisis. A stage similar to the Great Depression of the 1930s resulting from the Keynesian downward spiral is not very far, which cannot be revived without the injection of enormous external monetary aid. It is necessary to comprehend the economic aspect and consequences of the pandemic at an individualistic (micro) level to account for all the economic changes and then devise an action plan at a macro level to temporarily dampen and resolve the problem permanently. 

  1. Comprehension and Contextualisation of the micro-macro link 

¯​¯​            The need to study the link between micro and macroeconomics arises from the need to identify the fallacies in executing actions on the basis of  general/conventional understanding of the link between aggregates(global economy) and its components(human beings) as a solution for the problem at hand(pandemic). The conventional understanding is that ‘the aggregate is the sum of all the parts. But the primary article differs from the said perspective and goes on to prescribe a philosophical concept – systemism which says that the aggregate shall be understood in the form of systems.  A system is more than the mere sum of its components but rather also includes the present and prospective relations between such components and respective products created out of such relations. A comparative study of this incongruity between systemism and conventional understanding in the pandemic scenario shall help us prove how the revival of particular systems or components shall help us revive the global economy (aggregate). The authors in the primary text establish various compositional fallacies in a conventional perspective that might occur while studying the link between micro and macroeconomics. They are as follows :-

3.1 Simplistic fallacy

      The fallacy is where the aggregate is seen as a sum of its components in ignorance of the relations and the positions taken by its components. In the present context, it is factual knowledge that the virus spreads through direct human contact, so the conventional solution would be to make every individual avoid any direct contact(blanket regulation of the microeconomic behaviour of all components to influence a desired result in the macro level) until a cure is invented. But the fallacy here is, though complete isolation could help restrict the virus spread, the components who make the aggregate(the nation, world) are humans who depend on various simple as well as nuanced factors for subsistence like food, shelter, clothing etc. These factors are not a part of any particular component but rather products of the combined efforts of several individuals who share an organised relationship(factory, office etc). Thus these factors cannot be produced and distributed in absence of human contact. Therefore the contact can only be reduced to the extent of the factors which don’t substantially affect the subsistence of the beings in the short term. Even this option is categorised only on the basis of priority of the relationship they share with other members and the position held in the aggregate. For example, police, defence, and the judiciary are some of the essential factors that cannot be dispersed entirely but can only be regulated to restrict the spread. 

3.2 Static fallacy 

      This fallacy is where the study of aggregates misses out on predicting or accounting for any novelties that could be generated via the relationship shared by components in addition to ignoring the existence of a relationship between the components. Thus it could be said this fallacy is built on the previous fallacy. In the process of blanket regulation of microeconomic behaviours of individuals without considering the relationships shared between them, we also tend to miss out on activities performed as a part of the relationship that could create novel products that could resolve the problem. To elaborate, the functions of pharmaceutical companies and research organisations – who are a set of individuals in an organised relationship with an object and the ability to produce vaccines (a permanent solution to the virus) in appropriate circumstances shall be ignored if the conventional methods of containment are followed. 

3.3 Dogmatic fallacy 

      This fallacy is where the study of aggregates is again restricted to the mere study of its components where any complexities that could occur due to/in the process of their aggregation are ignored. Here such complexities are assumed as superficial and negligible residuals of the individual components. But in reality, the complexities are nuanced, yet have the ability to influence major changes in the economy. 

For example, we could consider the nuanced macroeconomics concept of the Keynesian multiplier. In the circular flow of income, an injection of funds would imply a greater than multiple increases in national income resulting from an increase in aggregate demand. That is, an injection of funds by the state through financial institutions would mean increased loanable funds to local businesses which in turn would increase the money spent on business activities. This would mean increased income to the employees and workers who either save or consume from the economy which would increase the aggregate demand and this circle repeats to multiply the value of funds in the economy multiple times more than the initial injection. The state could even innovate and direct/invest the injected funds to specific industries or types of businesses (MSME etc) which would have an effect of direct flourishment of the said industry in addition to the multiplier effect. This phenomenon cannot be particularly pinned to a single component in the system but rather can only be attributed to the harmonious working of various sectors in the economy(aggregate).  

  1. Inferences and Conclusion 

Thereby the article has explained the fallacies in the conventional understanding of the link. Thus applying the concepts to the pandemic we could explain our assertion. The table below summarises the concepts and provides some operational strategies that take into consideration the fallacies that could be used to revive the economy   

Fallacies Explanations  Strategies 
Simplistic fallacy Assumption that the aggregate is merely the sum of all its components. As there are hierarchical  relationships  (that are organised in proportion to their importance to human subsistence)    between the components, it’s ideal to prioritise the components with higher importance and legislate in accordance to that 4.1 Hospitals and medical staffs(component) occupy the frontline defence system, who have direct ability to help the public in fighting the prevailing virus, in the present state and the forthcoming mutations and waves. – therefore they shall be funded and primarily prioritised
Static fallacy Missing out on novelties that could be a product of such relations between components 4.2 Indigenous pharmaceutical companies and research labs (component) who occupy the secondary system of defence have through their relations gained the ability to invent and produce vaccines to fight the forthcoming spread. – funding, and reduction of taxes on production and research shall increase the chances of the development of this possibility.Tech companies(component) could be encouraged to develop and implement large-scale AI-based healthcare solutions across various fields such as surveillance, medical imaging and patient interaction etc, similar to the ones implemented in china to fight the pandemic.
Dogmatic fallacy Neglecting the complex interactions that occur, and the characteristics that are found only at the aggregate level, where individually none of the components could be pinned with such characteristics. 4.3 By using knowledge about complex and recurring interactions at the aggregate level such as the Keynesian multiplier effect States could make monetary injections through initial investments in essential consumer goods industries (component) to increase the existing consumer behaviour.In addition to that, the state could take  measures that encourage consumer behaviour and reduce saving behaviour to keep the money flow within the economy by avoiding leakage 

Thus the article emphasises on  how the revival of the global economy is dependent on the revival of particular systems (out of all other components). Thus its ideal for the nations and international organisations to consider the above-mentioned strategies while devising the action plan for reviving the global economy (aggregate) in place of implementing blanket regulations in accordance with the conventional understanding of the micro-macro link.

Arvind Menon is a student of the B.B.A.-LL.B. 2019-24 batch of Jindal Global Law School. His areas of interest surround Constitutional law, Contracts and Commercial Law  and Trial Advocacy

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