Notable Linkage: A Country Is Not a Company

1996 Paul Krugman article.


Should politicians turn to business leaders for advice in formulating economic policy? Not according to economist Paul Krugman, who argues that executives’ advice is often disastrously misguided.

The arguments that economists know to be true seem counterintuitive to businesspeople. For example, executives agree that free trade will result in more exports and therefore more export-related jobs. Economists know, however, that workers who gain jobs from increased exports must gain them at someone else’s expense. And businesspeople believe that a country that attracts foreign investment will run a trade surplus, but economists know that such a country will necessarily run large deficits.

It’s not that economists are smarter than businesspeople. They simply think a different way. Economists deal with the closed system of a national economy, whereas executives live in the open-system world of business.  Moreover, economists know that an economy must be run on the basis of general principles, but businesspeople are forever in search of the particular brilliant strategy.

Business leaders who have been promoted to economic advisers are no more likely to be great economists than military experts. People who have mastered the complexities of running a multibillion-dollar enterprise may think they can make pronouncements whenever the subiect is money, but before they can offer sound economic advice, they must master a new vocabulary and a new set of concepts. In short, they must go back to school.

A Country Is Not a Company