Monday, November 03, 2014

Business vs. Economics

New Krugman:

Obviously there are business leaders who have gotten the economic analysis right, and plenty of academics who have gotten it wrong. (Don’t get me started.) 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.

More here.

This is often a conversation killer when it comes to discussing the economy: "Oh, well, I'm a businessman so I KNOW what I'm talking about."  And, just like that, you have to shut the hell up because Mr. Businessman KNOWS economics.  And you don't.  After all, he's a businessman.  And you're not.

But it's really not like that at all.  Business and economics are PROFOUNDLY different fields, looking at money in PROFOUNDLY different ways.  Business, it goes without saying, is only part of the economy, and, for that matter, businessmen can really only be seen as experts on their own businesses, but not others.

So, okay, they're experts.  On the other hand, do you have a bank account?  Then you're an expert, too.  Do you have a job?  Same thing.  Do you donate to charity?  You're an expert.  Do you spend money?  Uh-huh.  Do you live within an economy?  Yep, same thing.  We're ALL experts, then, which is to say that we're not experts, not economists.  So we need to do away with the weird myth that businessmen are economics experts.

Okay, sure, if you go to business school you take a couple of economics classes, the traditional macro and micro, maybe one or two more as electives, if you want.  Well, so what?  I took macroeconomics, myself, and even an economics of the cable TV industry class, too.  Both were really only marginally more sophisticated than the honors economics class I took in high school.  So, lemme tell ya, this stuff isn't rocket science or anything like that.  With a minimal effort, you can pretty easily get a handle on pretty much everything business students study as far as economics go.  Even then, however, you're still not an expert.  You simply have a bare bones understanding of how the economy functions.

Of course, that's an excellent starting place for a personal life-long informal study of economics, which I HIGHLY recommend: economics is the study of POWER, and if you don't understand power, then not only are you very likely being ripped off, there's also a good chance you're being oppressed.

I suggest you start by reading Paul Krugman's twice weekly column in the New York Times.  He's a Nobel Prize winning professor of economics at Princeton, and his essays are aimed at laymen like you and me.

Seriously, we all need some intellectual protection.