Taking On the Policy Entrepreneurs

...He sees the professors as "members of a species that, like penguins and ostriches, is faintly ridiculous," and says, "They get tenure and build reputations that get them other perks by publishing thousands of papers every year in scores of obscure journals...

...But the real villain of Peddling Prosperity is the President himself: "Bill Clinton wasn't captured by the strategic traders...

...So the big question is: How should the U.S...

...Indeed, the world is ruled by little else," and ends, "it is ideas, not vested interests, which are dangerous for good or evil...

...Krugman brags, bullies, and denigrates those he regards as his inferiors in what the profession terms "economic science...

...Not incidentally, the academics were right....' Not incidentally, it should be noted here that in 1972 the American Economic Association elected Galbraith its president...

...Some of the policy entrepreneurs are Wall Street securities analysts and forecasters whose predictions, declares Krugman, are rarely right...

...The "familiar" one—brilliantly developed by Arthur M. Schlesinger Jr...

...Was it trying to appease one of mainstream economics' harshest critics...

...The author's heaviest fire is directed at the so-called strategic trade theorists...

...At MIT, Harvard and a dozen or so other top universities in the country whose conception of economics is narrow and mathematical, the focus is on abstract model-building...

...That is honest, if not particularly helpful...

...Krugman denies the paternity...

...The best, according to him, are to be found exclusively in the upper reaches of the ivory tower...

...The spirit of the times demands that theoretical economics become useful again...

...America's two great economic concerns, he says, are the slow growth in productivity and rising poverty...

...Hit by charges of sour grapes and sexism, he has apparently thought better of saying anything about her here...

...Perhaps some day a new economic prince, a new Keynes, will come...

...He argues that the creators of the former, Canadian economist James Brander and his Australian collaborator Barbara Spencer, only showed how its elements could be used to justify a more aggressive, even protectionist, trade policy...

...When Tyson was named to that post, Krugman told the press she was not qualified...

...Other peddlers of prosperity (and prophets of doom if their policies are not followed) are journalists, including editorial page editors, and former Fourth Estate members now serving politicians and businessmen as consultants...

...As the epigraph for this book, Krugman cites what must be Keynes' second most often quoted passage (after "In the long run we are all dead...

...Supply-side theory captivated the Right because it sought the redistribution of income toward the rich and a lessening of the government's role in dealing with the problems of the poor...

...Krugman indicates his own realization of this need...

...The "less familiar and equally important" one is that "there are two different kinds of 'economists,' " whom he labels "professors" and "policy entrepreneurs.'' It is to the second theme that the bulk of this volume, and virtually all of the author's anger, is dedicated...

...He has a talent for creating simple mathematical models that enrich and freshen old concepts...

...Unwittingly, his rancor tells us a good deal about the trouble with the current state of mainstream American economics...

...Arguably indeed," writes Krugman, "both Lester Thurow and Robert Reich were more deeply rooted in journalism than in academia...

...And he can write clearly and engagingly for the general reader, as he proved in his previous book, The Age of Diminished Expectations—a phrase he uses again in the subtitle of his latest work...

...The book was rapturously reviewed in the popular press, but it met with indifference from the academics...

...Although Galbraith is a Harvard economics professor, however, he has never been taken seriously by his academic colleagues, who regard him as more of a 'media personality.' The contrast between public and professional perception became particularly acute in 1967 when Galbraith made a grand statement of his ideas in The New Industrial State, a book that he clearly hoped would come to be regarded as being in the same league as John Maynard Keynes' General Theory or even Adam Smith's Wealth of Nations...

...There have been no fundamental reassessments, nor even a reconsideration of earlier ideas that were discredited prematurely...

...all other matters are either secondary or nonissues...

...He omits any reference to Laura D'Andrea Tyson, chairman of Clinton's Council of Economic Advisers...

...It was President Reagan who turned the old conservatism on its head—from cutting spending to make tax cuts possible to cutting taxes to force cuts in spending (except for the military...

...But Krugman is not discouraged...

...Described as a "law-yer-turned-economic entrepreneur," Reich is accused of portraying himself as a second Adam Smith because his recent book, also a bestseller, is entitled The Work of Nations...

...Since the 19th-century Idealists, there has never been a more overblown claim for the power of ideas...

...academics "scornfully" call them practitioners of "up-and-down economics...

...Unfortunately, so do bad ideas, like fascism, Nazism, Communism, racism, sexism, elitism...

...But Peddling Prosperity reveals a mean streak...

...He might have added the failure of neoclassical theory, in the guise of shock therapy, to solve the difficulties of the transition from Communism to a market economy in Eastern Europe and the former Soviet Union...

...In the category of the damned, Krugman ultimately concedes, you may find a few prestigious academic economists—notably Milton Friedman and his monetarism, and Robert Lucas and his rational expectations?but their laissez-faire solutions too have clearly failed...

...Krugman can, when he wants to, be as mean to the professors as to the policy entrepreneurs or the politicians...

...Doesn't it include the marketing of those ideas to interest groups by politicians in exchange for their votes and their dollars...

...The growing economic problems of the 1990s demand a new approach—an approach that incorporates and validates the institutional reforms which are necessary for policy makers to come to grips with those problems...

...Or was the profession honoring his long list of contributions—from The Affluent Society through The Culture of Contentment?that have increased our understanding of the interplay among economics, politics, business, and ethics, just as it later recognized Krugman's fine technical achievements...

...He seems to have a particular animus against professors who become policy entrepreneurs, such as Lester Thurow of MIT, who stayed put after Bill Clinton took office but whose best-selling book, Head to Head, the President publicly praised, and Robert Reich of Harvard's Kennedy School, a fellow Rhodes Scholar of Clinton's appointed Secretary of Labor...

...Another Krugman target is John Kenneth Galbraith, the Paul M. Warburg Professor of Economics Emeritus at Harvard and best-selling of all the economic writers: "The general public—the public that watches MacNeil/Lehrer or reads the New Yorker—thinks of Galbraith as an important economist...

...Krugman says his book has two themes...

...Reviewed by Leonard Silk Senior Research Fellow, Ralph Bunche Institute on the UN, City University of New York PAUL KRUGMAN, a professor at the Massachusetts Institute of Technology, is one of the brightest new lights in economics...

...Instead," Eatwell observes, "there has been a tendency to produce 'cookbooks' of models, each with no wider significance than the specific assumptions under which it has been constructed and each highly sensitive to any variation in those assumptions...

...he promises, like the late Richard M. Nixon, never to give up...

...Doesn't such Idealism include that of the academics who attach themselves to the rising stars of politicians...

...In fact, it is the lack of solid and creative work by mainstream research economists on public policy issues that has opened the way to the false solutions of the policy entrepreneurs...

...Professor Krugman, one of the fastest guns in the East with a word processor, has contributed mightily to that oversupply (a technical impossibility, according to efficient-markets theory...

...He has nothing new to say about the supply-siders, that group of Right-wingers led by Arthur Laffer, Jude Wanniski and Robert Bartley, editor of the Wall Street Journal, whose deep tax-cutting remedies have helped to quadruple the Federal deficit without improving the economy's saving, investment, productivity, or growth rates...

...Krugman's version goes: "Politics on the grand scale is not about interests but about ideas...

...Krugman's main attacks are, on the conservative (Reagan/Bush) flank, against the supply-siders, and on the liberal (Clinton) flank, against the strategic trade theorists...

...This may seem strange coming from someone who proudly says he was among the contributors to the "new trade theory"?which complicates Ricardo's original theory of free trade, based on the law of comparative advantage, by marrying it to the theory of monopolistic competition and to the complexity caused by increasing returns to scale of production...

...government go about solving these two problems...

...And the answer," he says, "is straightforward: It shouldn't...

...He does offer an array of policies that might be considered, but warns that we don't really know how to bring back "the magic" of expanding productivity (it might simply come back by itself, he suggests) or how to wipe out poverty...

...Still others are denizens of Washington think tanks and teachers in "unorthodox environments" (like public policy institutes or business schools) inclined to haunt the corridors of political power or fill the TV screens...

...The search for that generality of vision which characterized the success of Keynesian theory has been abandoned...

...in Cycles of American History—is that there are cyclical swings in ideology from Left to Right and back again...

...Reich, in particular, was isolated from his colleagues at Harvard, who conspicuously refused to change his title from Lecturer to Professor, a serious academic snub...

...He concludes his Epilogue: "In the long run we are all dead, but one must have faith that good ideas live on...

...Was the Association merely buttering up a "media personality," despite his rotten book, to get attention for itself...

...The American public, disillusioned with supply-side promises, still wanted answers, and, chides Krugman, "as usual the answers of the professors were too mild or too complicated, if not for the public, certainly for the press...

...In 1991 the American Economic Association awarded him its John Bates Clark Medal, presented every two years to the country's foremost economist under the age of 40...

...Their American cousins then used the new trade theory to sanction a brass-knuckles, quantitative-targets trade policy, aimed largely at Japan...

...He was in one person both policy entrepreneur and politician...

...The point of his quotation marks around "economists" is that the professors are the genuine article, while the policy entrepreneurs are hucksters and, at most, second-rate economists given to oversimplifying and promising more than they can deliver to make a sale...

...Krugman, holding to basic free trade principles, derides the President's strategic trade mentors, especially Reich and Trade Representative Mickey Kantor...

...You will almost never see an economist whom the academics themselves regard as important or interesting" on television, Krugman informs the reader...

...Meanwhile, as John Eat-well, the Trinity College, Cambridge don, concludes in the current issue of Social Research, despite the weaknesses of neoclassical theory identified in the 1960s and '70s, it continues to dominate American and British mainstream economics...

...It begins, "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood...

...This had the full support of Nobel Laureate Milton Friedman...

...With its implication that producers who get the jump on their rivals may drive them out of the global marketplace, the new trade theory fathered the "strategic trade theory...

...he was a strategic trader himself...