By Amber Griego, Contributor

The macro, the micro….They don’t always translate with one another. When we talk about economics, what is the difference between these two?

Our household budgets operate at the micro level, since we all have to find funds in order to spend, and to satisfy our tax obligations. Our cities, counties and states also have to find revenue through taxation, federal subsidies, lottery, etc.

The federal govt is the currency issuer, it can’t work like your household budget, simply because it makes the money, it never has to find revenue! Just think of how different your budget would look if you had a printing press!? Your only limit would be what’s for sale! It is the same with the federal government. Each of the above describes a section of the whole economy, a piece of the pie. A graph of sectoral balances shows how our private sector is a surplus with extra cash in the economy, although not enough, while the govt sector mirrors it, showing that deficit spending is really our public savings.

Sector Financial Balances as a Percentage of GDP

Going on a money diet in your own household budget can be a great thing! Spending more than you have is a recipe for disaster in the long run, because you are always limited by available funds. It’s not a great thing for the federal govt, a money diet (surplus) brings on recessions, booms, and busts, as the govt is not limited by available funds like your household. It’s important to understand your own position in the micro-economy, but it’s equally important to understand to whole macro picture, and why the two don’t work the same way.