Annals of bad analogies

Political reporting is rife with bad analogies.  Not so bad, in and of itself, but as they often lead voters to actively misunderstand how the political world works, that’s definitely a bad thing.  Best example being how a household budget is most definitely not a good analogy for the finances of a government.  The idea that running a business is like making macro economic policy ain’t so good either.  Paul Krugman certainly knows of what he speaks:

For the fact is that running a business is nothing at all like making macro policy. The key point about macroeconomics is the pervasiveness of feedback loops due to the fact that workers are also consumers. No business sells a large fraction of its output to its own workers; even very small countries sell around two-thirds of their output to themselves, because that much is non-tradable services.

This makes a huge difference. A businessman can slash his workforce in half, produce about the same as before, and be considered a big success; an economy that does the same plunges into depression, and ends up not being able to sell its goods. Nothing in business experience prepares one for the paradox of thrift, or even the inflationary impact of increases in the money supply (which is real when the economy isn’t in a liquidity trap.)

And I haven’t even mentioned the fact that presidents need to work with Congress, and face far more limits on their authority than CEOs.

That said, I do think good management skills are hugely important.  I think that’s a much more useful analogy.  Working as a private equity consultant, not so much.

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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

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