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Quote of the Day: Why Businessmen Can't Run an Economy

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Paul Krugman spells out the key difference between a public official and a businessman:

Running a business is nothing at all like making macro policy. The key point about macroeconomics is the pervasiveness of feedback loops due to the fact that workers are also consumers. No business sells a large fraction of its output to its own workers; even very small countries sell around two-thirds of their output to themselves, because that much is non-tradable services.

This makes a huge difference. A businessman can slash his workforce in half, produce about the same as before, and be considered a big success; an economy that does the same plunges into depression, and ends up not being able to sell its goods. Nothing in business experience prepares one for the paradox of thrift, or even the inflationary impact of increases in the money supply (which is real when the economy isn't in a liquidity trap.)

Mitt Romney's entire campaign is being built on his success as a businessman, but given he made his millions firing people, the boast is an empty one. America's obsession with millionaires and their supposed brilliance is incredibly damaging to public policy - idiots like Donald Trump are viewed as serious Presidential candidates despite his horrific history of greedy acquisitions and vulture capitalism.

Running a business and running an economy are two different things - a point that needs to be made over and over again.

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