Peddling Prosperity: Economic Sense and Nonsense in an Age of Diminished Expectations | 
| Author: Paul Krugman
Publisher: W. W. Norton & Company
Category: Book
List Price: $15.95
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Avg. Customer Rating:  27 reviews
Sales Rank: 24540
Media: Paperback
Number Of Items: 1
Pages: 180
Shipping Weight (lbs): 0.4
Dimensions (in): 8.1 x 5.5 x 0.9
ISBN: 0393312925
Dewey Decimal Number: 330
EAN: 9780393312928
Publication Date: April 1995
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Product Description
The past twenty years have been an era of economic disappointment in the U.S. They have also been a time of intense economic debate, as rival ideologies contend for policy influence. But strange things have happened to economic ideas on their way to power--they've been hijacked by policy entrepreneurs who offer easy answers to hard problems.
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| Customer Reviews: Read 22 more reviews...
 really good, but seriously outdated November 11, 2008
Fiscally I'm very conservative, so I don't relish hearing my ideas bashed and those of Keynes extolled.
Such that I never paid Krugman much attention until he won that Nobel prize. Sure, I had read a couple of his NYT articles, but I didn't realize how well-respected he was academically until then. After Stockholm made its announcement, I decided to read a few of his books carefully -- to see what I was missing.
"Peddling Prosperity" is the second Krugman book I've read so far. It's very good. Krugman has a gift for explaining complicated ideas in a homely and memorable way. But I guess that's why he makes so much money.
Though this book can be characterized as an overall primer on macroeconomics, its major thrust is exploring what went wrong with productivity growth after 1973. It's an analysis of the problem paced in a leisurely enough way that you end up getting a lot of very useful background on the subject, although the book really goes nowhere and essentially concludes with Krugman admitting "we still don't know." But listening to his musings will improve you despite that admission.
The real problem with this book is that it sorely needs a second edition. It came out in 1994, before the productivity gains of the internet hit, before the Clinton surpluses, before the Bushian twin deficits, and, well, a lot else.
It's still very readable, and its merits far outweigh this shortcoming, but I wish Krugman would update it. About 20% or so of the text is totally useless by this point.
I think he's on to other things by this point, though.
 Inconsistent August 28, 2008
I enjoyed the first 120 pages of Krugman's book. It was very readable and given his biases, I thought, very fair. At that point the discourse becomes an indictment of the "Supply Siders". The evenhandedness disappears and one sided views of all conditions,actions and results take over. I am surprised by the large number of "5" level reviews. In reading them it is obvious that many of these reviewers have some experience in economics and must be aware of the not only the fallacies of Krugman's conclusions but the bias with which he treats the facts.
 Wrong conclusion from the start July 9, 2007
3 out of 10 found this review helpful
Krugman has bought into the myth that we are forever going backward and that true progress for all is impossible. This is completely wrong. He may not be as extreme as Marx, but he still believes in the "limits to growth" school of economics. No how much evidence is produced to debunk this, it is still the foundatation for benighted folks like Krugman. He has no understanding of innovation and why wealth is unlimited in today's world. He also throws up extreme views and then shoots them down, such as claiming that many argue for no role for government. Goodness, how silly and extreme can you get? If you want to liberate your mind and see the unlimited possibilities of the human mind see anything by Milton Friedman.
 Lacks discussion of sociology and public choice theory December 28, 2006
19 out of 27 found this review helpful
"If you are a good economist, a virtuous economist ... you are reborn as a physicist. But if you are an evil, wicked economist, you are reborn as a sociologist."
Krugman begins 'Peddling Prosperity' with this quote to expose a fallacy of conservative economists: they do not appreciate the fact that the real world is messier than over-simplified economic models of perfect competition. As someone who has already been through the 'markets are perfect' phase, I can relate. I had high hopes that this book would provide a more balanced and nuanced view of economics. Unfortunately, I was disappointed.
Issue One: Inequality and Out of Wedlock Childbirths
The first flaw is that Krugman ignored his own advice and treated modern day poverty as an economic issue, rather than a problem best studied by those "evil, wicked" sociologists. On page 4 Krugman notes that child poverty rose from 1973 to 1991, and that family income is only 5% higher in 1991 than it was 1973. He follows this up in chapter five with a whole host of data showing that the poorest families have gotten poorer and the richest families have gotten richer.
What Krugman does mention is the increase in out of wedlock childbirths, which have increased from 11% to 69% among blacks, and from 1% to 28% among whites (including Hispanics), with most of the increase taking place after the mid 1960's. (See the book 'The First Measured Century' about changes in 20th century America).
This rise of single motherhood has two consequences.-The first is that we created an entirely new category of poverty through single motherhood. In 1965 the late Democratic Senator and, and "evil, wicked" sociologist Daniel Patrick Moynihan showed that the breakdown of married two-parent family is the number one cause of poverty with his famous Moynihan Report. Modern research from conservatives like Charles Murray and liberal sociologists like Sara McLanahan and Gary Sandefur has confirmed the link between family structure and poverty.
Out of wedlock childbirths cause increased poverty, inequality, and lower wages in the bottom quintile of Americans, but Krugman consistently puts the blame on conservative economics while avoiding mention of family structure. I do recall one vague mention that social upheaval of the 1960's probably increased poverty, but that's about it.
For an accessible summary of the research on family structure and poverty, see 'The Marriage Problem' by the sociologist James Wilson. 'Civil Rights' by Thomas Sowell is an excellent example of an economist (and a conservative, no less) who does take into account cultural factors when discussing poverty.
Issue Two: Public Choice Theory
Krugman is correct that many conservatives are too wedded to simplified models in which markets always work. But there is an equally negligent assumption in the case for government intervention, which is that government interference can provide a better solution.
The rise of Public Choice Theory, for which James Buchanan received the 1986 Nobel Prize in economics, shows that this assumption is unwarranted. Government failure tends to be worse than market failure. This is why there were no Southwest's and JetBlue's when airlines were regulated, and why the price of phone service dropped rapidly after AT&T's government-granted monopoly was broken. And as another reviewer has mentioned, the purported market failure of higher prices after cable deregulation is really due to being granted legally protected monopolies at the local level. But the real lesson of Public Choice Theory is not that governments are innefficient, but that they are corrupt. This leads to regulatory capture, in which regulators help Big Business dominate an industry, rather than serve the consumer, small businesses, and entrepreneurs.
Krugman should have discussed Public Choice Theory, even though it bolsters that case for markets over government. Paul Samuelson, who has historically been the most important Keynesian economist in America, and the author of the best selling economics textbook of all time, did discuss public choice theory in his textbook. It is one of the main reasons that Keynesian economists abandoned the use of public works projects to stimulate the economy - it leads to corruption and graft.
For a good discussion of Public Choice Theory, check out 'New Ideas From Dead Economists.'
Issue Three: Europe
Europe has put into practice many of the policies that Krugman supports, so it seems almost unbelievable that Krugman criticized Europe for being too conservative. Europe has the policies that Krugman freely discloses at the start of his book that he supports: progressive income taxes and social welfare safety nets for the poor.
Europe also has a stubbornly high unemployment rate that runs about 3-4% or so higher than the United States. This cannot be explained by invoking "hidden unemployment" because all the major organizations that track international employment (BLS, ILO, OECD, Eurostat) agree that Europe has higher unemployment. Furthermore, there are objective measures of hidden unemployment, such as U-6 unemployment, and they are even higher still in Europe (they are a whopping 20% for Sweden). That should come as no surprise because a large part of hidden unemployment consists of people who have given up on finding a job. This is easier to do if you have extensive government safety nets to fall back on.
But the biggest problem with Europe is that its productivity lags the United States, even hourly productivity (although you can cherry pick individual European that do better, western Europe as a whole is worse). This productivity gap is understated because productivity only measures the employed. But Europe's higher unemployment is concentrated among the young and minorities (unemployment among young Muslims was 40% at the time of the Paris Riots). Young, inexperienced workers pull down the average productivity, so excluding them boosts Europe's productivity statistics.
Of course, it should come as no surprise that Europe is lagging in productivity. Although you do not think of bankruptcies as being good for the economy, they allow misallocated capital and labor to be put to a better use (think: employees at failed dot.coms going to work for more viable businesses). Much of the productivity gap between the United States and Europe has occurred because the United States has been allowing its manufacturing jobs to go overseas and focus on services. But the more protectionist Europe has kept those jobs at home and paid the price with lower productivity growth. The statistics bear this out. Germany has a mere 735 bankruptcies per 10,000 businesses compared to 1012 in the United States (page 59, Cowboy Capitalism: European Myths, American Reality).
The costs of starting a business in the United States are also lower. It costs about 1.7% of the per capita GDP to start a business in the United States, compared to 32.5% for Germany. France and Italy are even higher. So each year only 906 businesses are started per 10,000 in Germany compared to 1240 in the United States. Consequently, when Business Week did its survey of the 100 most important IT firms, the United States topped the list with 44, compared to only 4 for France and 1 for Germany(page 60, Cowboy Capitalism: European Myths, American Reality). Asian countries like Korea did better than Europe.
Incomplete. November 4, 2006
3 out of 4 found this review helpful
I see this book is in someone's "Listmania!" as being on the Economics reading list of the Wharton MBA program, alongside two primers on economics 101. Good grief. Please don't read it thinking that Krugman is explaining what economics is REALLY all about, or is doing so in a non-partisan way. Indeed, this IS how the book comes across, and perhaps this is why it is on the Wharton B-School reading list.
However, this book is hardly even-handed, and it fails to present a complete picture of the really important ideas in economics.
To be sure Krugman does discuss MOST of the modern big ideas in economics, and there are a lot of interesting insider perspectives in this book. What's more, Krugman provides a solid introduction to how economic theory can affect economic policy. Finally, Krugman is a hyper-intelligent and prolific economist, and one of the central figures in economics today - and these facts alone lend interest to the book. But if instead you're looking for answers as to which of today's economic ideas might be the best, this book falls well short of providing a balanced and complete picture of the possibilities.
First, the reader needs to be aware that Krugman is a strict Keynesian/new-Keynesian economist, which in short means that he has a distinct intellectual leaning towards all things originating in the theories of John Maynard Keynes, an extremely infuential economist who came to the fore in the 1930's. Nothing wrong with having an intellectual preference, per se. However, in Krugman's guided tour through the modern economic landscape he fails to mention one particular school of thought - the Austrian school - which happens to present a very serious challenge to Keynes, and indeed to all of the other major modern schools.
The three schools that Krugman DOES discuss in this book - the Keynesians, the Chicago School, and the Supply Siders - are along with Marxism the three most dominant schools of economic thought of the 20th century. And contrary to popular belief, these schools all share something fundamentally in common: they all base their ideas upon John Maynard Keynes' conceptual framework of the economy. That is to say, in the 1930's Keynes presented his theory as to what the primary building blocks of the economy are, and the other schools have subsequently accepted these as being the starting point for economic analysis.
For example, the Keynesian framework holds that A, B, C, and D are the economy's fundamental components, so that any and all conclusions one draws about how the economy works must take into consideration each of these. And though the disagreements among the different schools are excruciatingly complex, they ultimately are merely disagreements about how A, B, C, and D act upon one another other; not about whether for example C belongs in the analysis in the first place, or whether the addition of E might not indeed clarify things a bit.
The Austrian school, on the other hand, argues with considerable force that the Keynesian model is flawed. The Austrians - who almost no one has heard of and who even most economists pay little attention to - believe the Keynesian components A, B, C, and D are simply the wrong ones. The economy, they say, can instead be MUCH better understood in terms of A, C, F, and G for example. But no matter how penetrating and insightful their arguments are, the Austrian challenge to Keynes was dismissed decades ago due to historical circumstances and political expediencies, and is now far out of favor by practice. And it is very unfortunate that the reader will walk away from Peddling Prosperity without hearing the Austrians mentioned.
In sum, anyone interested in learning about how economic theory affects economic policy could benefit from reading this book. It gives a brief, accessible, and interesting snapshot as seen from one of today's central figures in the field. However, it would be a big mistake to come away from Peddling Prosperity thinking that you could now make an informed decision about which modern economic ideas might be the best. For while Krugman DOES give you a view of MOST of the big ideas - at least as seen from a Keynesian perspective - his omission of the Austrians is a critical one. Anyone who is interested in exploring the really important ideas in economics needs to include the Austrians on their reading list. The ideas are extremely powerful and their critique of Keynes and the Keynesian framework is truly profound. Warning: if you already know a thing or two (or even three) about economics be prepared, the Austrian perspective may just flip your lid and take you to a place firmly outside of the mainstream.
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