Matt Yglesias, the political commentator, is mildly upset over a report that President Barack Obama is turning to the investor Warren E. Buffett and Alan Mulally, the chief executive of the Ford Motor Company, for economic advice.
“My hope is that this is more about a search for ‘validators’ than a search for policy advice,” Mr. Yglesias wrote Aug. 23 on the blog ThinkProgress. “Yet it seems to me that both inside the administration and outside of it there’s a shortage of turning to economists with specific expertise in recessions for advice on coping with the recession.”
It’s not clear how much to make of the report. But it’s always good to remember that businessmen — even great businessmen — don’t necessarily know much about how to make the macroeconomy work.
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How can that be? Don’t they know all about creating jobs?
No, they don’t. They know all about expanding individual businesses — often, indeed usually, at the expense of other individual businesses. That’s an important and very lucrative skill, but it has very little to do with the problem of expanding a whole economy, whose main customer is … itself.
Realistically, even very large corporations don’t have to worry very much about, for example, the extent to which laying off workers will reduce demand for the company’s product. They don’t have to worry about the extent to which cutting wages will reduce purchasing power and the ability to repay debt.
They are, to use economics jargon, living very much in a world of partial equilibrium, never having to confront the feedback effects that are at the heart of the kinds of problems an economy as a whole faces.
Long ago I plowed through many issues of Fortune magazine from the 1930s, hoping to get some sense of what businessmen thought the problem was. All I found was incoherence. Sorry, but captains of industry don’t have common-sense wisdom about what makes recessions and recoveries happen. And as Mr. Yglesias says, none of them have any experience with a liquidity-trap economy. If they know anything useful, it’s mainly because they studied, well, economics.
And as I keep trying to point out, basic macroeconomics has performed very well in this crisis, even though nobody wants to believe it.
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Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.
Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007). Copyright 2011 The New York Times.