Wednesday, 17 February 2016

Success at Business ≠ Understanding Economics

 

Donald Trump claims to be very successful at business, observes Don Boudreaux in this guest post, and so too does John Key, but this would make neither an expert on the economy. Wealth doesn't indicate economic wisdom.

Here’s a refrain that I’m being bombarded with by e-mail and on Facebook; this particular version is a Facebook comment by someone named Thomas Marise (whom I don’t know):

_Quote_IdiotTrump has proven time and again he knows his stuff when it comes to economics. He has a personal wealth of $10Billion proving his understanding.
Hard to argue with results.

Such a claim is illogical, even if we assume — falsely — that Trump earned every cent of his monetary fortune honestly, rather that at least some of it through government-orchestrated theft.

Knowing how to run a business is not the same thing as knowing economics. To assume that the two domains of knowledge and expertise are the same is an error equivalent to assuming that a successful NASCAR driver is thereby an expert automotive engineer. Of course, it’s possible for a successful NASCAR driver to know something about automotive engineering, just as it’s possible for a successful business person to know something about economics.

But success at each of the former tasks (driving a race car and managing a business) is not the same thing as, and requires very little familiarity with, the latter domains of knowledge (automotive engineering and economics).

Strong evidence — indeed, virtual proof — that knowing how to run a business successfully does not imply knowledge of economics is supplied by the great economics-policy differences that separate successful business people. Charles Koch, for example, is a far more successful business person than is Donald Trump, yet Mr. Koch’s understanding of economics differs markedly from Mr. Trump’s. If success at business were a sufficient indicator of deep and expert knowledge of economics, it would be nearly impossible to explain the deep differences that separate Mr. Koch’s professed understanding of economics from Mr. Trump’s.

More generally, genuinely successful business people differ wildly amongst themselves in their expressions of economic understanding. Indeed, business people differ far more widely amongst themselves in their economic understanding than do economists (whose differences, while real, are nowhere near as great as they are often portrayed).

It follows that successful business person X’s claims about the economy cannot be presumed to reflect the knowledge, reflection, and understanding of someone who genuinely knows economics.


Clipboard01Donald Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University and, a former FEE president.
This post appeared at the Foundation for Economic Education website, cross-posted from Cafe Hayek.

3 comments:

  1. Probably correct, but not very convincing -because no explanation is given for why the two are different.

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  2. I agree the two don't necessarily follow, and can see how business success combined with shallow thinking could lead to the assumption that economic success on a macro level is all about the nation's head 'doing deals'. That's possibly what we have in Trump. On the other hand, if you've made money in a free (or semi free) market, you're much more likely to understand the importance of freedom in that process. The analogy he provides of the race car driver and automotive engineer is not entirely valid, because the economy is not a complicated piece of machinery that someone has to design and maintain. They just have to establish a sound framework based around property rights, and then be as hands off as possible.

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  3. What he means is: "Donald Trump will solve problems and that means certain Conservative protest groups would no longer need to exist, and would no longer need to raise money to pay huge salaries to those that run them" .....which is, of course, the sole reason the Conservative 'establishment' is so anti Trump.

    It is a fear he will actually succeed and put them out of a job that bothers them! haha!

    Constantly complaining about economic issues means you can stir up crowds, get invited on Fox News, raise millions, pay yourself millions, buy your own jet with supporters money, and be all very grand and important.

    There is no way Mr Bourdreaux wants any problems solved and that 'Donate' button on his website to become redundant....hahahahaha!!

    ReplyDelete

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