Krugman: It Doesn't Take A Businessman To Craft Sound Economic Policy

The New York Times:

"And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A."

That's how the fictional Gordon Gekko finished his famous "Greed is good" speech in the 1987 film "Wall Street." In the movie, Gekko got his comeuppance. But in real life, Gekkoism triumphed, and policy based on the notion that greed is good is a major reason why income has grown so much more rapidly for the richest 1 percent than for the middle class.

Read the whole story: The New York Times

Comments

[wisemanwise]

12:10 PM on 01/15/2012

After getting through the partisan politics as usual from Krugman, I am left with one question.
Tell me again why Greece had to implement these massive austerity measures? I thought it was because the Greek government could NO LONGER FUND their socialist nanny state...but apparently, they did not spend enough money??? No wonder I am not a Nobel Prize winning economist. And I am still unclear on how violating basic contract law in the case of auto industry bond holders is a successful program. Help me out on these things...just a dumb, job creating business owner over here! Thanks!

[carbolaw]

12:40 PM on 01/15/2012

Of course you ignore the fact that the debt crisis in Greece resulted in three factors. First, by adopting the Euro as their monetary unit, Greece left themselves with no choice but to engage in external debt in order to cover any shortfalls or budget gaps. This debt came through many of the same players that caused the debt crisis here in the US - mainly Goldman Sachs. Just like the mortgage backed securities, the Greek debt was packaged, interest rates went up, the global economic crisis hit and this debt was suddenly viewed as extremely risky and set to default. Second, these ties to the Euro prevented Greece from engaging in monetary policy on their own that could have prevented the entire crisis. Without the ability to print money they were left without this option. Greece made the mistake of trusting in the larger Euro zone economies. The idea was that Euro Zone would really operate as a single economic unit, not that the larger countries would look out for themselves as the expense of the smaller countries - Greece, Ireland, etc. Third, Greece has a huge problem with tax evasion. More so than any other country, in Greece tax evasion is like a national past time. The wealthiest individuals in Greece as well as the businesses in Greece were paying next to nothing into the tax system. This left the revenue side lacking and thus led to the budget shortfall mentioned above.

[wisemanwise]

12:51 PM on 01/15/2012

No, I am fully aware of all those points...none of which negate the fact that Greece could not and cannot support the funding requirements of the government's unrealistic commitments to its people. This is nothing new for Greece. They have defaulted at least 4 or 5 times...a couple of which were before GS was even founded in the mid 1800's. I was left with the impression from the article that Greece did not spend enough...it wasn't that they didn't spend enough...it was that spent so much they simply couldn't find any way to get more money to spend!

[billw8017]

01:02 PM on 01/16/2012

This touches all the major issues. Ireland was particularly acclaimed for its sound fiscal policies, it was the Celtic Tiger, before the bottom fell out.

[billw8017]

12:15 PM on 01/16/2012

Rick Wagoner had a plan to save GM. He would close major American plants and import cars from Shanghai GM, effectively closing out the American auto industry. Barack Obama fired Wagoner, replaced him with a more academic leader, renegotiated the union contracts to make GM more wage competitive -- something he might just as well have done in the bank bailouts -- and not only saved the American auto industry but restored it to world leadership.

The Greek austerity program involved firing government workers and deepening their recession. This has led to a further decline of government revenues for a loss in total from the program. How Greece is to be put on its feet without basic reforms is harder to say, but though it was not doing well, it is not now doing better.

As a dumb, job creating business owner you are probably concerned about sales. Throwing the country into a deeper and unending recession might give you the comfort of knowing the useless sheep aren't being favored over you even as your opportunity to join them is increased. You could be a little more ruthless in your own interests and do better by all.

[JPHR]

11:47 AM on 01/15/2012

Businessmen working within an economic framework are not necessarily the best to define that framework. Businessmen are used to dealing with micro economics and are quite clueless on macro economics.
However a more important dis-qualifier is the obvious fact that businesses are run as a dictatorship with no accountability to their employees. Successful businessmen most often have total control, which is fine if only maximizing profit is the issue. A monomaniacal mindset is a prerequisite for success in the business environment.
However society expects accountability from political leaders. The culture clash between the democratic principles and secretive CEO mindset denying any accountability was well exemplified by Cheney.

[Peter Combs]

11:31 AM on 01/15/2012

Unemployment in Greece was soaring LONG before they made ANY Austerity cuts...as of two months ago, Greece had yet to reduce anything and lied to the EU about having doen so and got caught. As a matter of fact it was learned in October, Greece had INCREASED spending and the size of Government over the last year.

[abhorson]

06:35 AM on 01/15/2012

Krugman - skillfully (not quite so) blending economics, politics and socialism to the point that weak minds no longer understand the difference...

let's see ? has he ever RUN a business ? no ... ever created a job ? no ... ever had a organization to run for profit ? no ...

but he can write papers on general equilibrium and new trade theory ... if only he'd stay silent on the rest !!

[Peter Combs]

11:57 AM on 01/15/2012

Agreed...he sounds lie a broken record who is and has been consistantly wrong for the last 4 years. His memory of recent history on the EU is also inaccurate,

[abhorson]

12:18 PM on 01/15/2012

I saw him on Fareed (sp?) today ... he stuttered a while ...

Of course, he has a "point" NOT to cut spending too much during a recession - and "Yes" to a "small" point - raising taxes=cutting spending TO the simple extent that it is still money taken out of the economy.

But, from there - it is all downhill.

The REAL argument is not deficits vs surpluses (God FORBID the feds tax us MORE than they can spend !!) ....

the REAL argument is over the SIZE of the government and how the larger it is the more structural problems in the "real" economy it creates and the inefficiencies it encourages.

but, it's a lost argument on people who just want to have a paycheck from uncle Sam ... Stalin figured it out, Hitler the same -- POPULISM WORKS... right until it drives you in the ditch.

[billw8017]

12:30 PM on 01/16/2012

Through the past four years Krugman has argued for a bigger spending stimulus and fewer tax cuts. Despite your opinion, the government's stimulus programs have only made a too small contribution to our recovery and have not been the complete and wonderful success you would have us believe.

Basically, government "stimulus" works like a jolt to the system but is quickly accommodated with social adjustments. The smallest stimulus might as well be no stimulus at all, but just let people search for work, find a little, and thus make a demand for more -- this is my analysis: "Job creator" investors and corporations are reactive, not active, and are more likely to lay people off or raise prices to keep shareholder profits in a declining market which worsens conditions.

[cb3cb3]

01:30 AM on 01/15/2012

I respect Paul Krugman, but he is speaking like a typical academic. Academics think they understand how to world works, but they are always proven wrong. If you want some proof, take a look at finance academics, such as those that espouse the efficient market hypothesis. Or look at Long Term Capital Management, which famously folded in the late 90's. It was founded by many famous academics, but they failed in the real world.

[abhorson]

06:37 AM on 01/15/2012

has he ever worked in the private sector running a corporation ? NO ...

created jobs ?? NO

made a profit and created wealth ??? ummm, NO

worked for government, gov institutions and in academia ALL his life? YES...

some interesting ideas on trade AND on mmt ? yes.. but, there'bout it all ends

[JPHR]

11:57 AM on 01/15/2012

Romney may have made a profit, but somehow i doubt whether he really has created wealth or jobs. By the way a similar Wall Street's claim on "value creation" has by now exposed as mostly fraudulent predatory practices only succeeding in grounding the world economy. Those private equity dealings more often than not saddled real companies with an enormous debt ultimately destroying the company. That kind of business is simply not comparable with sustainable economic activity.

[billw8017]

12:56 PM on 01/16/2012

As Keynes wrote, we have our age to learn and leaders tend to be 25 years behind academic thought because that is when they stopped learning. Ideas -- or academia, if you will -- are still major factors in all decisions, perhaps the only factors that truly matter. John Meriwether's Long Term Capital Management hired some academics but it grew out of the proprietary tradings desks at Salomon Brothers, was careless about risk and too big for its model. (Justin Fox)

[humanbeing-rick]

09:10 PM on 01/14/2012

"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." - Paul Krugman
Exactly! Good points made by Professor Krugman!
The last thing this nation needs is a businessman running it like a corporation!
Running a nation and a nation's economy requires a lot more than making a profit, it means taking care of it's people. it's infrastructure, it's health and well being. It means what is best for the welfare of our society, not a simplistic bottom line on a spreadsheet.

[abhorson]

06:30 AM on 01/15/2012

yes.... we need a government that takes care of the people, looks after our housing, how and what we eat, gives us food stamps, and free housing, and makes sure it keeps a close eye on what businesses are doing, it redistributes wealth from those who don't deserve it to the poor...

what hogwash .... I wish the federal government would commit sepuku (minus dept of defense).... and take all its supporters with it.

[pinetrale]

08:17 PM on 01/14/2012

A simple but elegant point. We are way oversold, that being a business man means they understand economics, and its just not so. They only understand local cause and effect driven by self interests and simple transparency, not the webs of complex interactions that define the political economy. A cook understands how to build an omlet much more completely.

[Darwincrat]

06:42 PM on 01/14/2012

There has never been a more eloquent spokesman for Keynesian economics than Dr. Krugman. His articles should be required reading for anyone seeking a true understanding of the way the economy works. It is unfortunate that today's Republican party has abandoned the economic views of Eisenhower and Nixon.

[gomezrules]

06:42 PM on 01/14/2012

Yeah, what do BUSINESSMEN know about economics, and um....business? What do people who deal with financial responsibilities that might determine whether their companies succeed or fail know about such things? Only elitist economics who have never ever worked in the real world could know such things. They're the ones who can tell you that one plus one plus one does NOT have to equal three, if there is a compelling reason for govt to NOT want that result! Only someone residing in the isolated, insulated womb of academia can 'know' how 'economic policy' can be determined. Heck our current POTUS 'knows' this as well, seeing how such types populate his admin to the exclusion of just about all others. Under THEIR stewardship, this country is just humming along as a result, isn't it now?

[littlebrowngirl]

06:30 PM on 01/14/2012

Business men are trained to focus on the business that they are in and don't care about the impact to other sectors.

[nappyman]

02:01 PM on 01/14/2012

Lee Iacocca (one of america's all time best CEOs) was famously asked if he would run for president. His answer was hell no, CEOs don't have to deal with congress.

[FilthyHarry]

01:21 PM on 01/14/2012

Agreed. I'm waiting for dems to ask one of these "CEO" candidates, what CEO doesn't want to raise revenue? What CEO doesn't want to grow the company? CEO as a politician is a horrible idea since they have only one thing in mind, the profits of their investors and their own salaries/bonuses, not the interests of their customers.

[NWBrunette]

12:30 PM on 01/14/2012

Spot on, Mr. Krugman. As always.

[AZreb]

10:40 AM on 01/14/2012

Sure seems like many "economists" have no idea of the economical truths, either.

[Raccoon1]

09:28 AM on 01/14/2012

What businessman shares power with two other branches? What businessman does not have control of the money?

Who crashed the economy in 2007? Businessmen or working people?