a country is not a company. no, it is not 1.knowledge from the classroom cannot be implemented in a...
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A Country is not a Company
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No, it is not1. Knowledge from the classroom cannot be
implemented in a firm2. Correct!3. Why?
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Two examples
1. Export creates new jobs2. FDIs cannot create deficit3. Is that true4. No!!!!
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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!!!!
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Autsorsing Greg Mankiw moreovde CEA ekonomski savet Was he fired? dao ostavku NO predsednika Buša
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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
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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
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Mankiw - an anemy
• Senator Schumer 27.5% custom tariff on Chiese goods svu robu iz Kine.
• But he did not convince them
• why?
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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
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comment:
• Statements like this one (exorts do not create new jobs) best represent why people HATE ECONOMISTS!
• At the NAFTA meeeting, Krugman
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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
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FDIs and balance of payments• Investors bring money.
• What happens to BOP?
• We get a surplus
• But we dont
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We must have a deficit
• Economists claim
• But bysinessman do not trust them, starting from themeselves
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• If all firms do like his firm, we must have a surplus
• Economists know that we will have an opposite situation.
• Why?
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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.
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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
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• it is obligatory • Everyone who knows accounting knows it
must happen
• Not maybe but certainly
• Deficit cannot be escaped
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Let us repeat
• What was our first fallacy• Exports make new jobs• explanation• Second fallacy• Fdis improve ballance of payments• Why not
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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
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• They cannot transfer their knowledge
• Centralized centipode
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Important differences between a company and a country
1. complexity2. How we run it
• indirectly• Firm by firm
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“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
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Closed system
1. Deponia 2. Garage3. Milan Panić
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Feedback in business
Only positiver
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Mostly negative in the country
• Fall in empl in other sectors• Or the rise in aggregate demand• Rise in inflation• Rise of r• layoffs
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Businessman do not realize
• Effects of low employment on wages• Growth of investments on the exchange rate
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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
•
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• If the answer is – “no”, you should better forget what he said
• Because he probably does not know what he is talking abouti