The proliferation of that sort of quick-and-dirty analysis is the theme of MIT professor Paul Krugman’s new book, “Peddling Prosperity” (303 pages. Norton. $22). Krugman, a superstar among economists, asks a frustrated question: why do politicians and the public so readily embrace pop economics? The answer, of course, is supply and demand-in this case, demand for facile answers that honest professors are often unable to supply. “[N]ecessity is the mother of invention: a different group, the policy entrepreneurs, has arisen to fill the gap,” he writes. The result, he contends, is a misguided debate about the economy.
Krugman, a prolific and insightful journalistic commentator himself, is no innocent when it comes to entrepreneurship. Nonetheless, he has a point. It’s the simple ideas that have staying power. And the policy entrepreneurs, often employed by “think tanks” that measure their “senior fellows” by their press clippings, are ready with sound bites. Who has time for the caveats and statistical tests more serious economists are inclined to offer? As presidential wanna-be Jack Kemp used to say, “If you could lay all the economists in the world end to end … it would be wonderful.”
In 10 lively chapters, Krugman traces how loose economic thinking has repeatedly led to wrongheaded government policies. In the process, he offers the best primer around on recent U.S. economic history. He can’t pass up the chance to skewer Wall Street Journal editor Robert Bartley, who helped transform supply-side economics from an obscure idea into Reagan administration gospel. But while Krugman ably attacks the simplistic antigovernment ideas behind 12 years of Republican rule, he saves his real fire for commentators who share many of his own liberal inclinations, such as MIT economist Lester Thurow and Labor Secretary Robert Reich. Their pop writings, he contends, foster the misperception that international trade is a game in which some countries win and others lose-a claim that Bill Clinton’s campaign made full use of “The widespread belief that the United States has lost its manufacturing base in the face of foreign competition is simply wrong,” Krugman insists-as is the notion that trade policy can be used to raise living standards.
Alas, it’s not as easy as Krugman implies to pick out the real wisdom. Although economist (and former NEWSWEEK columnist) Milton Friedman’s theory that the Federal Reserve could manage the economy by focusing on money-supply measures was disastrously wrong, the guy’s no quack; his academic peers elected him to head the American Economic Association, so why shouldn’t journalists and politicians solicit his views? Besides, many of Krugman’s friends in academe are policy entrepreneurs, too. On some subjects-telephone regulation comes to mind-it’s almost impossible to find a knowledgeable academic who isn’t on the payroll of one or more parties with an ax to grind.
The more useful lesson of “Peddling Prosperity” is how Washington should make use of economics. The fact is that economists rarely have unambiguous insights about what government should do. Their instincts and training are far more useful in knocking down bad proposals than in drafting good ones. If one wants an economist to offer the right answer, it’s important first to ask the right question.
