But instead we take advice from people who've never even started their own business on how to govern the whole country? — Gitonga

As an economics major myself, I can tell you with certainity that running a business is NOTHING like running an economy. I understand and somewhat agree that economists rarely have practical experience in the field, because there is none for us to acquire. We do not have labs where we can test certain policies. We only have history, and as you have probably already realized, history is not really the best tool for us. Policies that seemed great 30 years ago may now be trash.
Another reason for why economists may be perceived as doing a bad job is due to the nature of the economy itself. Economies are insanely complicated, so we must take many variables for granted and creat core ideas, such as that individuals are always maximizing, which in turn may even be wrong.

My point is that the economy is not as simple as it seems. It requires a lot of time and patience, disciplines that may outlast even the greatest entrepreneurs. If you jump the gun as an entrepreneur, you may loose your business. However, if you jump the gun as an economist, many lives may be destroyed. Cut us some slack, read about the basics of economics, such as inflation and interest rates and as long as we don´t get a pandemic every year, you have nothing to worry about.
Hope this helped!

you have nothing to worry about. — Alejandro

But against those who warned, most were convinced that banks knew what they were doing. They believed that the financial wizards had found new and clever ways of managing risks. Indeed, some claimed to have so dispersed them through an array of novel financial instruments that they had virtually removed them. It is difficult to recall a greater example of wishful thinking combined with hubris. There was a firm belief, too, that financial markets had changed. And politicians of all types were charmed by the market. These views were abetted by financial and economic models that were good at predicting the short-term and small risks, but few were equipped to say what would happen when things went wrong as they have. People trusted the banks whose boards and senior executives were packed with globally recruited talent and their non-executive directors included those with proven track records in public life. Nobody wanted to believe that their judgement could be faulty or that they were unable competently to scrutinise the risks in the organisations that they managed. A generation of bankers and financiers deceived themselves and those who thought that they were the pace-making engineers of advanced economies...

So in summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.

What the British Academy Review answered to the UK's Queen Majesty when she asked them "How did no one know the financial crisis would happen?".

Only drivers know about roads, civil engineers are full of shit.

And I can prove it because a bridge fell down once.

Drivers never crash, and entrepreneurs never go bankrupt.

Economists are full of shit

Yeah, they are. And so are you and so am I and so it goes with all the humans on the planet.'

Everything we eat turns to shit.

The economy is NOT run by economists. There are myriad forces at work in making (or allowing) the economy to function...and your views of the situation are, to be charitable, naive.

We believe that we understand the past and think the same about the future. The precautions that we take are all based on the past. You never think that the river will flood past the mark, even if had flooded past many other marks. That is how we think, sadly

Instead of the economy being run by economists — Gitonga

Which actually they don't run.

we should ask entrepreneurs how to run the economy especially those from poor backgrounds because they'd know what needs the most priority in terms of how to succeed financially. — Gitonga

Entrepreneurs are far more in charge of the economy than economists. Although the majority are likely from middle class background with good education (the school dropout billionaires are few).

But instead we take advice from people who've never even started their own business on how to govern the whole country? — Gitonga

You confuse the economy here with government policies. Government economic policy is the small pond where economists cackle to each other. Even the economists in central banks aren't the ones calling the shots behind closed doors. Reality check: the economy isn't run by the government in Western countries. China is the example of basically fascism where the government puts down just where the economy will go, but not the West.

Economists don't run the economy just as sociologists don't run the society.

summary there should be no "economist" that hasn't first started their own business that isn't a consultancy. — Gitonga

I get your point, but don't get lost in the 'all people are bad' dichotomy. There are plenty of business men who have failed and are working in Gov't in their respective fields (some are indeed bad for the country). Kind of like the football coach who got cut from his team when he played. Or the music teacher who can't play. Does that make them good or bad teachers and coaches? Depends. Some people who are exceptionally good at their craft make not so good or even lousy teachers and vise versa. I've seen it.

The other questions relate to people who are successful in private sector and whether that always translates to success in the public sector? And/or those in the public sector having had the political experience, does that always guarantee success?

Perhaps the truly great one's learn the rules, then know how to break some of them, for the benefit of all (not at the expense of others and benefit of few).

I can tell you with certainity that running a business is NOTHING like running an economy — Alejandro

Ok, then what is the difference?

Economies are insanely complicated, so we must take many variables for granted and creat core ideas, such as that individuals are always maximizing, which in turn may even be wrong. — Alejandro

Agreed. Economics is very far reaching, particularly global economics. I remember in college reading Milton Friedman's Free to Choose and realized how sensitive economics can be... . It's certainly a far cry from someone opening up a service-economy and/or retail type establishment with a business loan then goes bankrupt a few years later. When you have bookkeepers and tax lawyers, there's only very little one can learn from that.

Everything we eat turns to shit. — Frank Apisa

Which turns to fertilizer. Which in turn grows more food. Ergo, buying groceries is a scam. :wink:

You never think that the river will flood past the mark, even if had flooded past many other marks. That is how we think, sadly — Alejandro

It's a rather ironic example. Considering that peak rainfall and flood risk is higher than ever, and flood defense updates are needed.

Everyone then who hears these words of mine and does them will be like a wise man who built his house on the rock. 25 And the rain fell, and the floods came, and the winds blew and beat on that house, but it did not fall, because it had been founded on the rock. 26 And everyone who hears these words of mine and does not do them will be like a foolish man who built his house on the sand. 27 And the rain fell, and the floods came, and the winds blew and beat against that house, and it fell, and great was the fall of it.

I think it's actually pretty recent that "building your house upon the sand" is seen as a necessary part of politics and human nature. It probably comes from short term forecasts of expectation being much easier than long term forecasts of exposure. Pompeii was great for farmers until the volcano erupted.

Fortunately for us, as a species we're now aware of a few volcanos we've built on - climate change is going to make the planet uninhabitable if it continues like this, resource limits on necessary goods for our economy like oil derivatives, massive vulnerability to short term supply + demand shocks (hello Covid), industrial agriculture ruining soil, constant overproduction and waste...

But such knowledge probably won't show up in quant models! They're for making good of fertile ground. Lava is an externality. The ground is fertile, forget about the future.

What country are you from?

Take any small to medium business. You know, local restaurants, bars, local service providers and the like. You have the owner(s), the supplier(s), the customers and the employee(s). If this business is the only one of its kind, as the economy is, then its importance is indispiutable. Here is precisely the difference. If your favorite restaurant closes its doors and goes bankrupt, the effect on the macroscale is null. Even in the microscale the effect is tiny if there are enough substitutions (other restaurants). The owners may find somewhere else to work, the same goes for the employees. Customers will just go to other businesses and life goes on. You see, I numbered only 4 groups that are affected by the restaurant operation, and they are quite small. For an economy, to have a no more fossil fuels policy implemented, you will leave thousands of people without jobs, many companies going bankrupt, many suppliers with their hands full of unsellable product and customers with no idea on how to fill their car´s tank. The impact of any policy made by economists is huge and the effects are in no way comparable to the effects of a business

Lmao. My dad is a civil engineer and this is actually crap he has to deal with haha.

You've done it again, Aristophanes. Saving the world, one idea at a time.

Also, there is more to the economy than businesses. Economists are like weather men. Even the best can only do so much. And they still get crapped on by armchair economists.

The assumption that business is all there is to an economy, and that economy is all there is to society, is absurd. Milton Friedman's myth.

The Origin Of 'The World's Dumbest Idea': Milton Friedman

I think Friedman was very well informed about there being a public sector.

For him the important role of the government was the following:

in a free private enterprise exchange economy, government’s primary role is to preserve the rules of the game by enforcing contracts, preventing coercion, and keeping markets free.

Enforcing contracts and preventing coercion is basically what the legal system provides. And Friedman acknowledge the obvious roles, starting from the defence sector:

However, there are some items where it is not feasible for everybody to do his own thing.
There are some cases in which you must have uniformity, some cases in which the answer
must be the same for all the people. The most obvious example is in the case of national
defense. There is no way in which some people in a country can be engaged in an
international war and other people in a country can be not engaged in that war. The decision
whether the country is at war is a yes or no decision that must be the same answer for all.

(Milton Friedman)

And of course he understood other roles of the public sector too.

Education is today largely paid for and almost entirely administered by governmental bodies or non-profit institutions. This situation has developed gradually and is now taken so much for granted that little explicit attention is any longer directed to the reasons for the special treatment of education even in countries that are predominantly free enterprise in organization and philosophy.

But coming to the article you posted, one part is a bit confusing when speaking of Friedmans article:

What’s interesting is that while the article jettisons one legal reality—the corporation—as a mere legal fiction, it rests its entire argument on another legal reality—the law of agency—as the foundation for the conclusions. The article thus picks and chooses which parts of legal reality are mere “legal fictions” to be ignored and which parts are “rock-solid foundations” for public policy. The choice depends on the predetermined conclusion that is sought to be proved.

A corporate exec­utive who devotes any money for any general social interest would, the article argues, “be spending someone else's money… Insofar as his actions in accord with his ‘social responsi­bility’ reduce returns to stockholders, he is spending their money.”

How did the corporation’s money somehow become the shareholder’s money? Simple. That is the article’s starting assumption. By assuming away the existence of the corporation as a mere “legal fiction”, hey presto! the corporation’s money magically becomes the stockholders' money.

This is a bit strange. A corporation is indeed just a complex legal contract and only a vessel for the owners in their business endeavor. Owners do own the company. This assumption isn't only with Friedman, it's basic economic theory of a company, not as the writer terms "legal fiction". Economic theory starts from basics and these are the basics (that companies and corporations are contracts) and only after comes a different question, what is the role of markets, market transactions and companies to the good of the society in general. It is simply erroneous to assume a larger importance to the simple fact that a company is a contract, and then make the argument that well, the thinking doesn't take into consideration stakeholders, the society or the environment. That simplified part of a theory doesn't answer to those issues. It's just a poor argument for promoting stakeholder value.

Here's the article: The Social Responsibility of Business is to Increase its Profits

Friedman treats the corporation as a legal fiction, resting on the assets of the stockholders. Hence when they spend corporate money they "spending someone else's money".

If Friedman were to be consistent he would have to argue that the corporation's agency is equally a legal fiction, resting on the agency of the stockholders. It is only by ignoring this that he is able to pretend that the only interest of the corporation is profit.

Stockholders are members of the wider community and have interests beyond mere profit. It is not unreasonable to expect these interests to be reflected in the actions of their incorporated entities.

Referring again to , The Social Responsibility of Business is to Increase its Profits, the other argument begins with this:

On the grounds of consequences, can the corporate executive in fact discharge his alleged "social responsibilities"? On the one hand, suppose he could get away with spending the stockholders' or customers' or employees' money. How is he to know how to spend it? He is told that he must contribute to fighting inflation. How is he to know what action of his will contribute to that end? He is presumably an expert in running his company--in producing a product or selling it or financing it. But nothing about his selection makes him an expert on inflation. Will his holding down the price of his product reduce inflationary pressure? Or, by leaving more spending power in the hands of his customers, simply divert it elsewhere? Or, by forcing him to produce less because of the lower price, will it simply contribute to shortages? Even if he could answer these questions, how much cost is he justified in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropriate share of others?

Which amounts to: we don't know what to do, so we should do nothing. Friedman goes on for the remainder of the article to repeat this in various ways. It's indeed a dumb idea.

If Friedman is talking about the corporations role or social responsibility of countering inflation, that indeed is questionable.

Do you really think that curbing inflation is the role of a private corporation? This kind of nonsense is usually directed at the wage earner and the labor unions: to do "their share" in fighting inflation. Perhaps the flimsy argument can be hurled at companies and corporations too. Inflation, just to remind us, is basically a monetary phenomenon resulting of government spending and the printing of money.

So if you argue that Friedman is wrong here, just what is your reasoning that private companies have to fight inflation caused by the expansion of the money supply? It's as dumb as to say that the baker shouldn't raise his or her prices because the cost of flour has gone up because the currency has lost it's value. But let's blame the baker, not the actual culprit.

And do notice that the article has been written in 1970, hence in an era when we had traditional inflation and the US was still clinging on to the gold standard on an unreasonably high value (which would be soon called out).

It's indeed a dumb idea.

It may be the pot [you] calling the kettle black. You seem to be reading something else into his thesis by missing the point ( as usual LOL). Otherwise, the ideology from Friedman basically represents ... "there is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

And so, back to the OP, the business man is typically not as concerned with macro economics as he is in maximizing realistic goals of, and for, the company and shareholders-as it should be. As such, it won't make the businessman an experienced expert in global economics or domestic economic policy either. So to say that all business men are experts in macro economic policy is an ignorant judgement, particularly those who repeatedly fail/bankruptcy and profess to be a king's of [national] debt :snicker:

Besides, many businesses are happy to accept a Gov't bail-out check(s) when things get tough. That obviously suggests that Gov't is supposed to know better. Using the sports metaphor, that's why you have offensive and defensive coaches. In principle, each should stay in their respective wheelhouse.

Your counter appears to be the non sequitur that businessmen should not try to fix the world.

Sure. Start small.

How is it a non sequitur? (Surely you're not just trolling again are you... LOL.)

The argument is that businessmen may do more than just maximise profit. The counterargument, that they cannot fix inflation, does not follow.

The argument is that businessmen may do more than just maximise profit. The counterargument, that they cannot fix inflation, does not follow. — Banno

Don't take this the wrong way, but it seems that you may not know what you're talking about. One argument is they should stay in their wheelhouse and worry about their goods and services; company goals & profits, all in a responsible manner as governed by the rules of the game.

If they raise prices as a result of no competition, then shame on free enterprise and capitalism. The freedom afforded by same, encourages entrepeneurs to start businesses that compete against each other, which in turn can reduce inflation. ( Government controls interest rates and money supply to curb inflation, that's their wheelhouse.)

So the OP proposition is that ALL businessmen make good economists, which is (thus far), the so-called non sequitur.

Your counter appears to be the non sequitur that businessmen should not try to fix the world.

Sure. Start small. — Banno

More like the non sequitur criticism hurled at Friedman/economics: "You mean that economic theory assumes businessmen doing business? What about the greater good for the society and what about the environment??? When you don't have those in the most basic economic model it is disgusting!!! Shame on you."

You don't appear to be addressing the actual critique. Meh.

So your faith extends to the market.

You don't appear to be addressing the actual critique. Meh. — Banno

If you didn't notice it, the specific question was about what a private corporation/company can do about inflation.

Which amounts to: we don't know what to do, so we should do nothing. — Banno

No. Friedman actually makes the point: If LBJ and Nixon spend a lot in fighting the Vietnam War among other things and thus causing the US dollar to lose value, is it then up for the companies or the wage earners to do something about it? By the way, you are making the flimsy argument which is typically hurled against labor unions to "do their share" in fighting inflation and them being the culprits of inflation, which isn't true.

Please tell us what private companies have to do then. As I said before:

This kind of nonsense is usually directed at the wage earner and the labor unions: to do "their share" in fighting inflation. Perhaps the flimsy argument can be hurled at companies and corporations too. Inflation, just to remind us, is basically a monetary phenomenon resulting of government spending and the printing of money. — ssu