Excerpt from The Great Unraveling by Paul Krugman, plus links to reviews, author biography & more

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The Great Unraveling

Losing Our Way in the New Century

by Paul Krugman

The Great Unraveling by Paul Krugman X
The Great Unraveling by Paul Krugman
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  • First Published:
    Sep 2003, 426 pages
    Aug 2004, 480 pages

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Popular culture reflected a deep sense of disillusionment. Among the big movies of the early 90s were Falling Apart, about a laid-off worker who erupts in rage, Grand Canyon, about the menace of crime, and Rising Sun, about American decline and the rise of Japan.

What about the promise of new technology? In the early 1990s, this seemed like a promise broken. For sure, new technology was all around us—but it didn't seem to be delivering much in the way of results. More and more workers were equipped with computers, every office had a fax machine, cell phones and e-mail were starting to become widespread, but none of it seemed to pay off in employment or higher living standards. One prominent economist—he would later be a notable American triumphalist—told me privately that he regarded high tech as "high bull——."

Above all, the American people were disillusioned with their leaders, private and public. Every airport bookstore featured rows of volumes with samurai warriors on their covers, promising to teach readers the secrets of Japanese management; the point was not just that the Japanese seemingly knew how to run modern corporations, but that the people running American companies seemingly didn't. All the latest gadgets seemed to come from Japan; not only had "made in the U.S.A." ceased to be a guarantee of quality, many consumers had come to distrust domestic products. CEOs of major corporations were mocked as bumbling, overpaid incompetents—when President George Bush took auto company executives to Japan to demand economic concessions, the affair turned into a public relations disaster.

The loss of respect extended to our politicians. The most remarkable thing about the 1992 election wasn't that Bush lost. It was that H. Ross Perot, a candidate completely out of the mainstream, took 19 percent of the vote. In a nation where third parties have never flourished, that was a huge vote of no confidence in conventional political leaders.

In short, it wasn't the best of times—and many observers expected things to keep getting worse. Yet over the next eight years the nation would experience an amazing economic and social turnaround.

The good years

It took quite a while before people realized that things had really turned for the better. You might say that pessimism had become a national habit. As late as the winter of 1995-96, despite a steadily falling unemployment rate, the newspapers were full of alarmist headlines about job loss and downsizing. In the 1996 presidential campaign, Bob Dole's economists attacked the Clinton administration for what they claimed was a sluggish, below-par economic recovery. Less partisan economists knew better, but they remained cautious, having seen too many false dawns. Yet eventually the evidence became too strong to deny: the U.S. economy really was on the mend. And so, it began to seem, was our society.

Given our current state of renewed disillusionment, it's tempting to dismiss everything that went right in the Clinton years as a mirage. Indeed, the manic optimism of the late 90s got ahead of the reality. But the nation's real achievements were spectacular.

First and foremost for the lives of most people, by the end of the 90s jobs were plentiful—more plentiful than they had been for decades. Between 1992 and 2000, U.S. companies added 32 million workers to their payrolls, driving the unemployment rate to a 30-year low. Full employment meant jobs, and a chance of escape, for families that had been caught in the poverty trap: poverty rates fell sharply, for the first time since the 1960s. Partly as a consequence, social indicators like crime rates showed spectacular improvement: by the end of the 90s, New York City was as safe as it had been in the mid-1960s.

If job growth was impressive, the increase in productivity— the amount produced per worker—was even more impressive. In the 1970s and 1980s, low productivity growth—barely 1 per-cent per year—was the greatest failing of the U.S. economy. Poor productivity performance was the most important reason why living standards stagnated for typical American families: an economy without productivity growth can't deliver a sustained rise in wages. But during the 1990s productivity took off; by decade's end it was rising faster than ever before in American history, and wages had ended their long stagnation.

From The Great Unraveling: Losing Our Way in the New Century by Paul Krugman. Copyright Paul Krugman. All rights reserved. No part of this book may be reproduced without written permission from the publisher.

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