But success in business does not seem to convey any special insight into economic policy. Why? The answer, to quote the title of a paper I published many years ago, is that a country is not a company. National economic policy, even in small countries, needs to take into account kinds of feedback that rarely matter in business life. For example, even the biggest corporations sell only a small fraction of what they make to their own workers, whereas even very small countries mostly sell goods and services to themselves. So think of what happens when a successful businessperson looks at a troubled economy and tries to apply the lessons of business experience. He or (rarely) she sees the troubled economy as something like a troubled company, which needs to cut costs and become competitive. To create jobs, the businessperson thinks, wages must come down, expenses must be reduced; in general, belts must be tightened. And surely gimmicks like deficit spending or printing more money can’t solve what must be a fundamental problem. In reality, however, cutting wages and spending in a depressed economy just aggravates the real problem, which is inadequate demand. Deficit spending and aggressive money-printing, on the other hand, can help a lot.
Posted on: Tue, 04 Nov 2014 15:14:52 +0000
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