Don Boudreaux over at Cafe Hayek blogs on the distinction between "microeconomics" and "macroeconomics." The distinction he makes he says is due to the Swedish economist Erik Lindahl, who spells it out in his book Studies in the Theory of Money and Capital. Boudreaux writes
The distinction, as I understand it, is this:Boudreaux goes on to add
Microeconomics focuses on the actions of individuals; it examines how individuals respond to incentives, as well as studies the various incentives that individuals in different circumstances confront. Gary Becker is a living example of a premier microeconomist.
Macroeconomics involves tracing out the unintended consequences of various actions and sets of individual actions. It studies the logic of the spontaneous, unintended order (or disorder, as the case may be) that emerges when each of many individuals respond to the incentives identified and classified by microeconomics. On this definition, Hayek is certainly one of history's greatest macroeconomists.
So a typical microeconomic insight, for example, is the recognition that a price cap on gasoline reduces suppliers' incentives to supply and increases the quantities buyers' seek to purchase. A (confessedly simple) macroeconomic insight is the recognition that an unintended consequence of the price cap will be queues at gasoline stations and black-market dealings in gasoline.
A more elaborate macroeconomic insight is Carl Menger's explanation of how money was not the creation of a conscious mind but, instead, evolved into use.
Both "micro" and "macro" are important -- and understanding people accurately at the "micro" level is useful for doing good work at the "macro" level.I agree with this last statement. I would also agree that micro is about what incentives people face and how individuals respond to these incentives. As Steven E. Landsburg has famous put it,
Most of economics can be summarized in four words: People respond to incentives. The rest is commentary.I'm guessing that it is the view of macroeconomics that will be the controversial part of the above quote. But I think I agree with that as well. Any other views?