The Great Unraveling: Losing Our Way in the New Century, by Paul Krugman

The Roaring Nineties: Why We're Paying the Price for the Greediest Decade in History, by Joseph Stiglitz

reviewed by
Edward Fullbrook



aul Krugman’s collection of opinion pieces from the New York Times exposes the utter shamefulness of a dark ongoing chapter in American political life that threatens not only the US but the whole world. I encourage everyone to read it. Krugman used to be just another well-published university economics teacher of the dreary “mainstream” or neoclassical variety.  But in the mid-1990s he gave up the pure academic life when he began writing for magazines like Fortune and Slate.  His direct approach and plain English admirably suited these new venues.  Success followed, including an offer from the New York Times for which since January 2000 he has written a noteworthy twice-weekly column.  During that year’s presidential campaign, Krugman began forcefully attacking Bush and Bush’s policies, especially Bushonomics – and was almost the sole mainstream voice to be brave enough to do so.  Since the election he has continued his excoriating critiques in many columns, which have become essential reading for Democrats and the political classes, making Krugman the preeminent US critical columnist of the Bush era.

Beyond the superb anti-Bush assaults, Krugman however, may not be the innocent he likes his liberal public to believe.  Economists seldom are.  Learning why is part of understanding the origins of the state of affairs Krugman so effectively derides. A good place to start is Joseph Stiglitz’s The Roaring Nineties: Why we’re paying the price for the greediest decade in history.  This is another of those wonderfully improbable creations: a mass-audience book by an economist.  But unlike Krugman, who is little known outside his own country, Stiglitz debunks idiocies, especially economic ones, on the world stage.  He does so with special qualifications.  I refer not to his  “Nobel Prize in Economics”, awarded for his mathematical formalization of a phenomenon well-understood for generations, but as the former Chief Economist of the World Bank.  In books, in internationally syndicated columns and from the podiums of the world’s leading universities, Stiglitz has described his profound shock at discovering the incompetence and arrogance of the technocratic class, particularly its economists, at both the Word Bank and the International Monetary Fund.

Unlike most economists, Stiglitz is self-critical.  He also – and this distinguishes him categorically from Krugman, whatever his other virtues – is not afraid to kick the rhetorical scared cows of neoclassical economics. Krugman likes to portray himself as slightly to the left, but when the chips are down he defends neoliberalism fervently.  The central issue of “free trade” demonstrates the profound differences between these two books and their authors. No less so than at the Bush administration in his nifty New York Times column critiques, Krugman becomes livid at anyone criticizing the World Trade Organization (WTO), whose raison d’être is the enforcement of the neoliberal’s notion of “free trade. Krugman calls such criticism “global schmobal.”  He devotes a whole section to this subject, but with one exception he assiduously avoids specifying any of the many cogent criticisms of the WTO’s purist version of “free trade”.  He lets drop that poor nations have criticized the WTO regime for not allowing them to use tariffs to protect and develop their infant industries and then wades in with the following spectacular untruth.

The raw fact is that every successful example of economic development 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, that is, by producing for the world market rather than trying for self-sufficiency. (pp. 368-9)

This is untrue, like if I said that the Sun orbits the Earth.  All of today’s rich nations relied upon tariff protection and subsidies to develop their manufacturing base.  From the 14th century onward Britain used activist policies to promote its infant industries, especially its weaving industry which, when unprotected, was unable to compete against the Low Countries.  It was only when Britain became technically superior that it started advocating free trade to less developed nations, notably Germany and the USA, not only as a way of exploiting their markets but also hopefully of preventing their industrial development.  Later, colonialism became the means by which the countries of industrial Europe imposed free trade on the rest of the world.  But there was the huge exception of the USA.  Did it decide to voluntarily practice free trade in the form of no tariffs. Of course not.  Quite the opposite.  From the Civil War to the Second World War the American economy was the world’s most heavily protected economy, as it sought to become industrially self-sufficient in virtually everything.  It succeeded and in consequence became the world’s wealthiest nation and so then, almost inevitably, an advocate of the elimination of tariffs.  This centuries old strategy for keeping the poor poor, into which neoliberalism and the likes of Krugman have breathed new life, is an example of what has become known as  “Kicking the Ladder Away”  through the book of the same name by the Korean-born University of Cambridge economist Ha-Joon Chang.

But there is another dimension to the “free trade” strategy enforced by the WTO, one that Siglitz, unlike Krugman, is upfront about and that accounts for the inverted commas.  There are two primary routes to protectionism, two ways of eliminating international competition, two ways of curtailing free trade.  One method, government tariffs, which favors developing nations, the WTO is committed to eliminating.  But the other method of curtailing free trade and which favors rich nations and rich individuals at the direct expense of the poor, the establishment and enforcement of patent monopolies, the WTO (and implicitly Krugman), zealously supports. Krugman’s book gives the impression that the Clinton administration was unfailingly scrupulous in its support of free trade.  But Stiglitz, who was associated with the Clinton administration as well as the WTO, describes in his book how Clinton’s administration campaigned long, hard and effectively against free trade by bringing the enforcement of patents under the ambit of the WTO.  Stiglitz spells out some of the consequences.

“Intellectual property rights typically make some better off (the drug companies) and many worse off (those who otherwise might have been able to purchase the drugs).” [209]

“Market economies only lead to efficient outcomes when there is competition and intellectual property rights undermine the very basis of competition.” [208]

“Patents often represent privatization of a public resource, of ideas that are largely based on publicly funded research.” [208]

“Intellectual property rights need to balance the concern of users of knowledge with those of producers.  Too tight an intellectual property regime can actually harm the pace of innovation; after all, knowledge is the most important input into the production of knowledge.  We knew that the argument that without intellectual property rights, research would be stifled was just wrong: in fact, basic research, the production of ideas that underlay so many of the advances in technology, from transistors to lasers, from computers to the internet was not protected by intellectual property rights . . . “ [208]

Just as the USA in the 19th century extensively deployed tariffs to protect its infant industries, so it also refused to recognize international patents.  The Washington administration passed a law to that effect.  In an address to Congress in 1790, George Washington explained that the refusal to recognize foreign patents would give “effectual encouragement . . . to the introduction of new and useful inventions from abroad” [210]  The law remained in force until 1836. Patent monopolies work like tariffs except that they are collected by private companies, rather than by governments.  But they tend to be levied at much higher rates, especially on medicines which can be several multiples of 100 percent.  For a notorious example, anti-retroviral drugs that are used to treat HIV/AIDA have a patent-protected price of over $8,000 a year and generic equivalent costs of less than $300.  Acceptance of WTO rules means that developing countries are not only giving up their rights to free trade in medicines, but also condemning many of their citizens, in some cases millions, to premature death. This is the WTO that Krugman’s book, after one savors his anti-Bush sallies, supports.

Stiglitz recently observed that economics has suffered “a triumph of ideology over science”, the triumphant ideology being neoliberalism.  Krugman’s support of the WTO’s cruel policies can be taken as an example.  But it seems to me that there is another causal dimension to “the great unraveling” and to “the greediest decade”, one that not only Krugman but also Stiglitz fails to address, at least not directly.  It is ethics.  In particular, economics and ethics.  Neither book includes the word in their long indexes.  This reflects the banishment of ethical questions from academic economics, the hothouse in which these two authors’ sensibilities took shape. 

Economics has deluded itself into believing that it is above right and wrong, that in the name of “efficiency” (efficiency for whom?) and in the shape of algebraic formulas all questions of who gets what, when and where can and should be decided.  Today the economist’s training typically makes no mention of ethics, and certainly offers no exposure to ethical questions and debates, not even to the fact that the modern economics of Adam Smith grew directly out of his ethical concerns.  Thus while both these books are foremost concerned with ethical failure, neither author is capable of dealing with it directly.  To do so would require them, since they are speaking to us as economists, to in some way relate these ethical failings concerning economic matters to economics.  Such a discourse no longer exists, or at least not for these men.

There also are the not unknown questions regarding Krugman’s ethics as an individual, especially as a writer.  Given the Enron content of The Great Unraveling and its embarrassing preface, especially its “Why me?” section, it would be negligent as a reviewer not to the mention the notorious $50,000.   Krugman was one of half a dozen pundits and journalists whose good will for Enron was seeded with checks for $50,000 and more in the late nineties.  Ostensibly they were being paid for serving on an Enron advisory board, but as Krugman, to give him credit, confessed to the Daily Princetonian (22 February 2002), “This was an advisory panel that had no function that I was aware of.”  Instead, continued Krugman, their lucrative association with Enron “was all part of the way they built an image.”   Krugman’s contribution to that swindling image was a puff piece on Enron that appeared in Fortune in 1999. Despite this recent background (presumably because he thinks his readers will not know about it), Krugman likes to portray the integrity of rank and file big-city journalists as shamefully shabby compared to his own.  For example in his book’s preface he writes: 

But I’m not part of the gang – I work from central New Jersey, and continue to live the life of a college professor – so I never bought into the shared assumptions.  Moreover, I couldn’t be bullied in the usual ways.  The stock in trade of most journalists is inside information – leaks from highly placed sources, up-close-and-personal interviews with the powerful.  This leaves them vulnerable: they can be seduced . . . But I rely almost entirely on numbers and analyses that are in the public domain; I don’t need to be in the good graces of top officials, so I also have no need to display the deference that characterizes many journalists.  (xxvii)

Let’s call this highly questionable, perhaps even self-deceiving. Likewise with “the greediest decade”, the Bush administration and the ideology that defined them.  All that is certain is that in the name of neoliberalism the public realm has in our time been overtaken by an ethical void.  In their different ways, these two books are absolute must-reads that chart and illustrate the crimes that ensued.


Edward Fullbrook, University of the West of England, is the editor of the Post-Autistic Economics Review , of The Crisis in Economics, Routledge, 2003, and of A Guide to What’s Wrong with Economics, Anthem Press, 2004.