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Monday 16 January 2012
America Isn’t a Corporation

But there’s a deeper problem in the whole notion that what this nation needs is a successful businessman as president: America is not, in fact, a corporation. Making good economic policy isn’t at all like maximizing corporate profits. And businessmen — even great businessmen — do not, in general, have any special insights into what it takes to achieve economic recovery.

Why isn’t a national economy like a corporation? For one thing, there’s no simple bottom line. For another, the economy is vastly more complex than even the largest private company.

Most relevant for our current situation, however, is the point that even giant corporations sell the great bulk of what they produce to other people, not to their own employees — whereas even small countries sell most of what they produce to themselves, and big countries like America are overwhelmingly their own main customers.

Yes, there’s a global economy. But six out of seven American workers are employed in service industries, which are largely insulated from international competition, and even our manufacturers sell much of their production to the domestic market.

And the fact that we mostly sell to ourselves makes an enormous difference when you think about policy.

Consider what happens when a business engages in ruthless cost-cutting. From the point of view of the firm’s owners (though not its workers), the more costs that are cut, the better. Any dollars taken off the cost side of the balance sheet are added to the bottom line.

But the story is very different when a government slashes spending in the face of a depressed economy. Look at Greece, Spain, and Ireland, all of which have adopted harsh austerity policies. In each case, unemployment soared, because cuts in government spending mainly hit domestic producers. And, in each case, the reduction in budget deficits was much less than expected, because tax receipts fell as output and employment collapsed.

53 notes

  1. thisisjamesj reblogged this from azspot
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  4. alsson reblogged this from shiracoffee and added:
    Actually, he’s dead wrong, as usual. The analogy isn’t government vs. corporations. It’s skilled private and public...
  5. shiracoffee reblogged this from azspot and added:
    As usual, Krugman is right on the money (pun intended.) One of the most insidious errors of human thinking is that, when...
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  7. brcdncn said: It’s a franchise?
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