Why not a CEO as chief economic adviser?

[Kurt_and_Hunter]

Why not a CEO as chief economic adviser?

Because there is nothing you learn in business school or practical business that in any way prepares a person for the current state of the US economy. Period.

When we were operating as a normal economy surfing the ups and downs of the business cycle a CEO might be a fine pick. But today only an academic is even remotely likely to offer good advice. (And most of them wouldn't.) Nobody has much practical experience with this situation. It is a theoretical/historical situation.

Consider this analogy. Everyone with "scientific credentials" who supports creationism turns out to be an engineer. Would you trust someone who doesn't believe in evolution to design a sturdy bridge? Sure. Why not? Humans designed a lot of clever things before Darwin came along.

A true scientific perspective is not necessary to design a bridge. It is, however, necessary to do science.

Scientists have to believe surprising things... powerfully counter-intuitive things. Like that it only took a few million years to get from australopithecines to modern humans. Or that electrons can vanish and reappear on the other side of a barrier without ever passing through it. (Even the crudest electronic device depends on that trick though nobody alive can really 'feel' it. It's not how the macro world behaves.) Does time slow down in your fingers when you move your hand? It does, but it makes little sense. Yet if velocity didn't slow time our GPS system would be hopelessly out of sync in a matter of days or hours.

Similarly, practical business-sense is an actual detriment for the top economic adviser today. Give a practical man a table of what prcentage of electrons tunnel trough which barrier and he can do excellent engineering. But we don't have those tables for what ails the economy. We have a theoretical model that requires some real imagination and abstraction to make sense of.

Maybe after 20 of these melt-downs we will have such tables. But we don't. So we need brave original thinking, not "common-sense" that we already know to be wrong.

If we double our monetary base will interest rates go up? The practical, sensible answer is "of course!"

The Obama administration has acted like they believed that obvious wisdom, even with Summers (who is a first rate economist in his own way) at the helm. The administration bought into the Warren Buffet "bond bubble" scare. Worse yet, the administration has shown no recognition that only inflation can correct our current situation.

These are counter-intuitive things that people like Paul Krugman knew from the get-go (precisely because he IS in an ivory tower) but that any business-sensible person will maintain are impossible.

You have equations. When the variable "Fed Funds Rate" reaches zero the equations put out seemingly nonsensical results, like that no matter how much money the Fed authorizes to be created it will not be inflationary as long as it must be created through loans (which is how we create money) until the real interest rate goes down. (Which requires inflation.)

Everyone "knows" that can't be right but in the 1990s Japan doubled her monetary base in seven years while experiencing net deflation. As predicted by people who saw through the limitations of seeming common-sense in an unusual crisis.

The practical temptation is to say, "that result goes against common sense so it must be that these equations stop working when you hit 0%." That is what all the business leaders have said. That is the basis of what the tea partiers believe. That is why Warren Buffet foolishly told people to sell their treasuries. (At great cost to those who followed his advice.) It is why Glen Becks hyper-inflation scare-a-thon is taken seriously by a lot of people.


Nobody anywhere wants to hear this, but the only way to get our economy back on its feet is for the government to borrow trillions and pump it into the economy. The private sector cannot possibly do that because even at 3% money is too expensive these days. (Axiomatic. If money isn't too expensive at 3% then we wouldn't be selling 10 year bonds yielding less than 3%, which we are.)

In a potentially deflationary environment any borrowing is a risk. But only borrowing can create more money in the economy which is how you stop/prevent deflation.

The government can take that risk. Private enterprise never will because it's a sub-optimal deal and private enterprise doesn't have to shepard the whole national economy.

Whoever Obama's next top economic adviser is, it has to be somebody who understands these things and is willing to believe them.

Who is that? It won't be a Krugman or Roubini or Stiglitz type. Too controversial. But it should be somebody men like that vouch for.

[Kurt_and_Hunter]

1. ...

[JustAnotherGen]

2. Well me?

I'm excited at the idea of Anne Mulcahey being a potential candidate. Yep - she shut down the consumer division of Xerox (which she helped build up by the way) but she made a necessary cut to grow where we could. She also implemented the green initiative at Xerox. <----This isn't a lip service thing - it's a true pointed way of doing business. AND - She knows what it means to work your way up from the bottom.

I have too many connections, friends working there in Rochester - they loved the woman. Those who survived can tell you - the lay offs sucked. But they feel a sense of security now. And she has a core believe in the employees and the customers being what defines your business. Not Wall Street. You take care of the 'people' first and make them happy and Wall Street's kudos will come.

I attend a few leadership conferences for women in business organizations I belonged to in Rochester (moved to NJ 4 years ago) and as far as her ability to persuade and inspire from a place of LOGIC? She's tops.


I like the idea of someone being in that position that started from the bottom up, saw her company crumble, kept at it, survived, and found a way to keep something of an American Icon.