The Influence of Microeconomics and Macroeconomics on Financial Regulation
Microeconomics and macroeconomics are two disciplines in economics that any economics student is very much familiar with. And you have to know that both disciplines don’t seem to like one another. In the present, there will be many changes that will affect the financial services industry. There are many things that are affecting the financial regulation of the country. There are two major forces that are butting heads in the current financial services industry. When it comes to business students, they often lean toward microeconomics. In this set-up, profit maximization is the overall goal. Businesses can make as much money as possible through fixed costs and marginal costs. In simple terms, how CEOs view the world is what microeconomics is all about. A CEO does the best that they can for the company to deliver value and make more money.
On the other hand, macroeconomics is very much attractive to policy geeks. For such an economic discipline, the primary goal is to attain market equilibrium. Simply put, services and goods with the greatest number can be exchanged between sellers and buyers with the application of mutually agreeable prices. There is good competition between businesses in this set-up. The use of oligarchies and monopolies is bad. If you look at the world with macroeconomics, you are using the eyes of the government. In essence, this economy strives to make everyone involved happy, which often opposites making everyone equally unhappy too.
Since these two perspectives are very much different, it is expected that they will go against each other in various instances. While efficient markets generally make everyone happy, the government must take the necessary steps that may go against the microeconomics of businesses to get there. There are times that the financial industry must stop a merger so that competition can be promoted. Sometimes, there must be proper legislation of disclosures so that informed decisions are made between buyers and sellers. At the same time, certain activities must be stopped or regulated so that some will not be harmed by others financially.
While it may be annoying to see the government and business sectors fighting over market regulations, it is expected. Unfortunately, the battle between microeconomics and macroeconomics stops when everyone is happy with the booming economy. When businesses make money, they become happy. Consumers are equally happy too because they have money. The government is quite happy because the system is working just fine for everyone.
However, with recent financial crises, the financial services industry may get lost and damaged. Any market bubbles are the responsibility of government regulators. To secure the economy, the government must make sure to enact the necessary financial and securities regulations and measures.