Accidental Theorist-By Paul Krugman,Economist,MIT.
Hi Lee:
Now this is an interesting book to read,I think I may get a copy.
Have you read it?
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Source:Morningstar
It could be argued that there are two main problems with academics (excluding bad wardrobes). One is that many are loath to criticize a colleague publicly, even when such criticism is richly deserved. (Vicious back-biting is quite prevalent, but that's another matter.) Another is that although that academics write and speak for a living, they often find it difficult to communicate with the masses. This seems particularly true of those who work in the most quantitative social sciences, including economics.
Thus MIT economist Paul Krugman's latest book, The Accidental Theorist, is a particularly welcome volume. In this collection of short articles that have appeared in Slate and other publications, he dishes out criticism freely and intelligibly, improving the reader's knowledge of economics and finance in the process. He points out simple errors in theory and thought that often underlie the pronouncements of even the most prominent economic commentators. Krugman is no Shakespeare, but his work is accessible, often funny, and always on the mark.
Krugman's first target, and the inspiration for the book's title, is Rolling Stone writer William Greider. It's about time someone ridiculed Greider; this "accidental theorist" has probably written more nonsense about economics during the past decade than anyone else, including Ross Perot's speechwriters. (Krugman calls him an accidental theorist because of the incoherent theory that underpins his work.) In 1997, Greider published an alarmist book, One World, Ready or Not: The Manic Logic of Global Competition, in which he argues that growing productivity will cause global supply to outpace demand, eventually causing an economic meltdown. As evidence, Greider cites declining global employment in a variety of areas, including steel and heavy industry.
Krugman's reply to Greider is simple: Sure, some industries have lost jobs, but that's irrelevant to the level of overall employment. Krugman is right. There are a number of sunset industries that have lost jobs, but the growth of the service sector has more than compensated for these losses. In the United States, where manufacturing jobs have been lost by the millions, the economy has actually added a net 45 million jobs over the past 25 years. Greider's simple error--a fallacy of composition--is that he assumed that what's true for a particular industry is also true of the economy as a whole. Because of Greider's mistake, the main value of his book, Krugman says, is to show "how easy it is for an intelligent, earnest man to trip over his own intellectual shoelaces."
Krugman also skewers a group he calls the "four percenters"--those who argue that the U.S. economy could grow much faster, if only the Fed would let it. Their contention is that worker productivity is rising more than official statistics indicate, and thus the Fed could let the economy grow much faster without sparking inflation. The problem with this reasoning? First, if the economy were expanding too slowly, relative to its potential growth rate, then one would expect unemployment to rise. With the unemployment rate near a 30-year low, that's a tough case to make. Krugman also notes that if productivity is rising faster than official measures indicate, then, by definition, output must be higher, as well. In other words, the economy would already be growing as fast as the four percenters say it can grow, which means the Fed's policy is already appropriate.
Krugman doesn't attack only those on the left; as a moderately left-leaning economist, he reserves some of his most withering fire for supply-siders. Krugman writes, "Supply-side economics is a crank doctrine, pure and simple," and he backs up that claim with ample evidence. First, the 1980s didn't work out like supply-siders said they would; even after the Reagan tax cuts, the economy grew no faster than it did during the 1970s, and the budget deficit exploded. Second, the 1990s haven't worked out as predicted by supply-siders such as Newt Gingrich and Steve Forbes, both of whom had forecast economic doom in 1993, when President Clinton pushed a tax-heavy deficit-reduction plan through Congress. Instead, the economy has grown steadily during the 1990s, and millions of new jobs have been created.
Krugman is at his best in explaining why supply-side thought remains with us "despite lacking any actual evidence in its favor." He contends that "any idea appealing to the prejudices and interests of the wealthy is guaranteed a powerful constituency," noting that the rich tend to fund the think tanks that produce research "discovering" that reducing taxes on the affluent is a good idea. He concludes that no matter how much supply-side economics is ridiculed and refuted, it is "like one of those African viruses that, however often it may be eradicated from the settled areas, is always out there in the bush, waiting for new victims." Krugman adeptly addresses other topics as well, ranging from advice to Japanese monetary authorities (print money) to making a case for levying taxes on people who drive during rush hours as a way to reduce congestion. In each of these cases, Krugman's sound theoretical grounding and lively writing make his views well worth reading, even if one ends up disagreeing with them.
If there is a problem with this book, it occurs in the introduction, where Krugman laments that no respected economist has written an educational book that's truly targeted at the masses. He calls economics "a profession without popularizers" and says that most well-known economic writers espouse ideas that "are demonstrably wrong, and sometimes terminally silly." But surely Krugman is aware of economist Alan Blinder's popular and useful book, Hard Heads, Soft Hearts, which also addresses basic economic problems in an interesting, thoughtful way. Blinder is no crackpot; indeed, later in the book Krugman acknowledges using Blinder's introductory economics text in his classes.
Such errors are few in this book, however, as Krugman's analysis is right on target when it counts. The Accidental Theorist is a fine book, one that economic novices and experts alike will enjoy reading.
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Scott Cooley is an equity fund analyst for Morningstar Mutual Funds. He can be reached at scooley@morningstar.net.
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