An Economist's Call to Arms

By Gene Koretz


Losing Our Way in the New Century

By Paul Krugman

Norton -- 426pp -- $25.95

It has been a dozen years since he won the coveted John Bates Clark medal, awarded to the best American economist under age 40, but Paul Krugman remains something of an enfant terrible among economists. Krugman teaches at Princeton University and, since 2000, has written a twice-weekly column for The New York Times. He has done and continues to do first-rate theoretical work in such areas as international trade, exchange rates, and economic geography. At the same time, he has cast an increasingly critical eye on current economic issues and the failings of policymakers and pundits via a number of popular articles and books.

The Great Unraveling, Krugman's new book, made up largely of Times pieces but with a key introduction and comments, is his most provocative and compelling effort yet. In his incarnation as a Times contributor, the author has acquired something that his earlier works lacked: an impassioned moral and professional indignation aroused by what he terms "the outrageous dishonesty" of the Bush Administration's policy pronouncements.

While Krugman counts himself as a moderate liberal, his writings in the 1990s often faulted the economic reasoning of both Democrats and Republicans. His recent, almost obsessional anti-Bush stance, he writes, evolved as he began to observe a persistent deceitfulness in Administration claims. In the reprinted columns, he punctures the misleading rationales advanced for such initiatives as Bush's Social Security plan, tax cuts, and energy and environmental policies. Indeed, the book's unifying thesis is that the Administration's deliberate obfuscations reflect a hidden agenda to radically transform the nation's economic and political institutions.

How else, asks Krugman, to explain the Administration's flagrant fiscal irresponsibility? Bush's original $2.5 trillion, 10-year tax cuts, for example, were justified partly with the contention that they would easily be paid for out of huge projected budget surpluses. Yet when those surpluses morphed into soaring deficits ($550 billion next year alone), the Administration saw no reason to shift gears. Instead, it has pushed for more cuts and legislation to make many of its original cuts permanent -- even though they mainly benefit very wealthy households and don't even kick in till later in the decade. And this in the face of the pending retirement of baby boomers, which will soon put massive pressure on federal pension and Medicare outlays.

Similarly, Krugman points out that the Bush plan to "solve" Social Security's problems by diverting a share of payroll taxes into individual accounts simply ignores the fact that these funds are earmarked for the pensions of soon-to-retire older workers whose own taxes paid for the benefits of previous generations. As Krugman's lucid exposition of the complexities of Social Security financing makes clear, this would weaken the system's financing, forcing painful benefit cuts unless future taxpayers agree to pick up the tab.

Like some of Bush's Democratic critics, Krugman sees the same duplicity at work in the foreign policy arena. Many will agree with the Administration's current contention that the invasion of Iraq was justified because it ended a barbaric regime that brutalized its citizens. But the fact remains that the war was sold to the public on the grounds of Saddam Hussein's alleged ties to al Qaeda and his possession of weapons of mass destruction that posed an imminent threat to U.S. security. These claims still remain unsubstantiated by hard evidence.

Critics on the right tend to dismiss Krugman as a shrill left-wing scold. In fact, he is a distinguished mainstream economist, and as his book attests, holds opinions on the benefits of free markets, trade, and globalization that would enrage supporters of Ralph Nader. Defending the World Trade Organization, for example, he writes that in "this past century, every case of a poor nation that worked its way up to a more or less decent, or at least dramatically better, standard of living has taken place via globalization."

Interestingly, a positive, almost glowing assessment of the Bush Presidency authored earlier this year by Bill Keller, Krugman's colleague at the Times and now its executive editor, concluded that Bush indeed intends to steer the nation in precisely the radically conservative directions Krugman describes. These include sharply reducing or eliminating the progressivity of the tax system (in part by ending the taxation of capital income), gradually downsizing Social Security and other safety nets, accelerating the deregulation of markets, freeing up the exploitation of resources, and privatizing government functions. Keller reported that conservative strategists who share most of these goals, such as Grover Norquist of Americans for Tax Reform, are gleeful because they believe Bush possesses both the boldness and the political smarts to induce voters to accept his program.

In contrast, Krugman, who regards his book as a wake-up call to the electorate, believes the public is mostly centrist in its views. He is convinced that few Americans, if they fully understood Bush's radical agenda, would choose to jettison cherished institutions and go it alone in today's highly uncertain economic environment.

Some will dispute this judgment. But who can deny that transparency and truthful information about a government's policies and goals are as essential to the successful functioning of a political democracy as they are to that of a free-market economy?

Contributing Editor Koretz has watched both the economy and economists for more than 30 years.

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