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Macroeconomics and you

One question I constantly puzzle over and have not come up with a good answer for is the extent to which a person should pay attention to macroeconomics. To a certain degree, macroeconomic trends are important input into the decisions we make in our day to day lives. Should you take a risky job at a startup with high potential upside, or a safe job that may not pay as well but is almost certain to be stable for the next five or ten years. Should you buy a house today before interest rates get much higher or should you wait for the housing bubble to burst and buy on the cheap tomorrow? Is overseas competition going to eliminate your programming job here in the United States? What skills should you learn to keep that from happening? Is rising demand for petroleum in the developing world going to lead to a peak oil scenario where fuel prices only go up? Does that mean you should strongly consider moving somewhere urban so that your day to day life is less reliant on fossil fuels?

You can drive yourself crazy worrying about this stuff. Even if there’s a housing bubble nationwide, there may not be one in your state, and the housing market can vary widely as it becomes more specific. The housing market nationwide is different than the North Carolina housing market, which is different than the Raleigh housing market, which is different than the downtown Raleigh housing market. For any individual, personal goals and personal finances are a lot more important than macroeconomic trends in making these decisions. Even if economically speaking, now is the best time to sell your house and rent a place, that doesn’t mean doing so would be the right thing for any particular person.

How much do you worry about this stuff? I’m coming to believe that making decisions to hedge against macroeconomic trends is almost always a big mistake. That said, people in Midland, Texas who didn’t foresee the oil bust in the eighties would probably disagree. What I know for sure is that I pride myself on paying attention to the economy and I didn’t foresee how the dot com bust would affect me, and affect me it did. I may as well not have paid attention at all.

Update: Billmon has an interesting post on the macroeconomic picture but I don’t even know how to interpret it with regard to how the average consumer should respond.

3 Comments

  1. I worry a lot about macroeconomic trends. Recently, I’ve been particularly concerned about the housing bubble–but not because it will affect me directly (I live in a city relatively unaffected by it and I think I’ve made some pretty conservative housing choices), but because of its affect on the overall economy. If the housing bubble starts to burst in areas most affected, then that will send shock waves through the economy.

  2. I am right there with you and despair of how to apply any insights (if they are actually insights) that I glean about macro-trends to personal circumstances.

    The latest example was reading Heinberg’s The Party’s Over and contemplating whether we would transition to a non-growth-based economy in my lifetime, and, if so, what that means for plowing cash into a 401K right now. My head exploded.

    Another example was reading a discussion of someone who’d invested in long-term-care insurance at a relatively young age to hedge against problems later in life. Is that a good thing to do? Who can tell?

    There are just so many variables even assuming that our current knowledge and expectations are valid, and with what I believe are likely discontinuities in the future – perhaps radical discontinuities – I’m really at a loss.

    Anyway, good post.

  3. There’s also the problem that no one has figured out how to make macroeconomic predictions that have abolutely any accuracy for more than one quarter into the future.

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