A Country is not a Company

No, it is not1. Knowledge from the classroom cannot be

implemented in a firm2. Correct!3. Why?

Two examples

1. Export creates new jobs2. FDIs cannot create deficit3. Is that true4. No!!!!

Why export does not create employment

Free trade opens new jobs : the more a county exports – the larger employment, the more we import – we lose jobs

• Correct?

• No!!!!

Autsorsing Greg Mankiw moreovde CEA ekonomski savet Was he fired? dao ostavku NO predsednika Buša

Why exports does not increase employment?

• Creates jobs in export sector• But destroys other jobs• How • Overheated demand, interest rate rises.• Total is zero

• Sectors gain, but the economy does not

Why imports do not lower employment

It really can decrease emp in a sector Like technical progress

No more typists Cash machines “popravka čarapa”, “vunovlačar”

But rises employment in other sectors Radiologists, voice services Sectors lose

Mankiw - an anemy

• Senator Schumer 27.5% custom tariff on Chiese goods svu robu iz Kine.

• But he did not convince them

• why?

Why does not anyone see that?

• Gains from esxports are visible– We see people– We see products

• And we see closed factories• Other effectsw are not visible the same

moment

comment:

• Statements like this one (exorts do not create new jobs) best represent why people HATE ECONOMISTS!

• At the NAFTA meeeting, Krugman

It happens in every country

In the US interest rate risesžGrowth of rDecrease in employment in construction, for

exampleAlso, decrease in employment in worse paid

sector

FDIs and balance of payments• Investors bring money.

• What happens to BOP?

• We get a surplus

• But we dont

We must have a deficit

• Economists claim

• But bysinessman do not trust them, starting from themeselves

• If all firms do like his firm, we must have a surplus

• Economists know that we will have an opposite situation.

• Why?

Mechanism

• Inflow on capital account must equal the outflow on current account

• That is accounting – and economics will tell you HOW IT HAPPENS

• Mechanism: capital inflow – appreciation – import demand grows – export falls – deficit.

But businessman do not believe that

• Arguable, they say• Will fdis import really that much?• How do we know that currency is going to

appreciate• Is exports really going to fall

• it is obligatory • Everyone who knows accounting knows it

must happen

• Not maybe but certainly

• Deficit cannot be escaped

Let us repeat

• What was our first fallacy• Exports make new jobs• explanation• Second fallacy• Fdis improve ballance of payments• Why not

What creates these fallacies– No businessman explains his work in his memoirs – Nor they could, since there was no theory

– But they implement strategies

– Many people say that Warren Buffet does not invest the way he wrote that he did

• They cannot transfer their knowledge

• Centralized centipode

Important differences between a company and a country

1. complexity2. How we run it

• indirectly• Firm by firm

“hands-off” role in state management

• Syndrom of importance • Thinks he can run every job

• But they must learn a new language.

• They think it is just a jargon

Closed system

1. Deponia 2. Garage3. Milan Panić

Feedback in business

Only positiver

Mostly negative in the country

• Fall in empl in other sectors• Or the rise in aggregate demand• Rise in inflation• Rise of r• layoffs

Businessman do not realize

• Effects of low employment on wages• Growth of investments on the exchange rate

Next time you hear a businessman talking about the economy, ask yourself

1has he studied this subject2. Does he know what experts think of this

•

• If the answer is – “no”, you should better forget what he said

• Because he probably does not know what he is talking abouti