The Recent Economic Crisis – A Microeconomist's View

Abstract

Two years ago a fire broke out in town. The fire started in a confined area, but the place was full of incendiary material, and given the housing density in town the fire spread rapidly. One way or another, very few buildings remained untouched by the fire. People with long memories said that there hadn’t been a fire like that in our town for eighty years. Fortunately, the fire brigade stepped in quickly, and its rapid action caused the flames to subside so that the damage was limited, although some houses suffered from water damage as a result of the huge (some say, excessive) water quantities used. Time will tell.

Now that the fire has died out (although flare-ups occur almost daily) it is time to examine the damage closer to home – what has happened to our house. In a nutshell, the answer is: thank God, it’s not too bad! The fire did cause some damage to the construction but it was mainly the neighbors who suffered, while the damage to our apartment was largely secondary (stench, heat, and commotion). In the final event, it was mainly morale that was adversely affected: a demonstration was held in front of the house with people shouting that we had not given them sufficient warning about the fire and had not foreseen the extent of the damage. I would like to devote my talk today to those complaints, as well as to the relations between the neighbors (the Microeconomic and the Macroeconomic families), the disputes among our neighbors following the fire, and whether they or we could have predicted it.