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The Accidental Theorist and Other Dispatches from the Dismal Science

by Paul Krugman, 1999, W. W. Norton & Company, 204 pp., ISBN: 0393318877, paperback, retail US$12.95.

This book caught my eye in an airport bookstore, and it proved to be an excellent travel companion. Paul Krugman was described by the Economist as "probably the most creative economist of his generation" (from the book cover).

The Accidental Theorist is a compilation of 27 short articles written mostly for Slate and other magazines. In the Preface he laments that economics needs a spokesperson to make the complex field more accessible and interesting—someone like a Carl Sagan who made astronomy exciting for millions. I think Krugman is accomplishing some of that. This book is witty, sarcastic and illuminating. The short subjects are often around something false or confusing that appeared in the media.

Some of the topics that I found most interesting include:

Keynesian economics versus supply-side economics: How money supply and taxes affect jobs and inflation.
Why the Maastricht Treaty (blueprint for European currency union) will likely depress employment levels. A little inflation is probably a good thing.
The folly of a gold standard: "gold is only a metal, and (its) value comes only from the truly useful goods for which it can be exchanged."
"In Praise of Cheap Labor: Bad Jobs at Bad Wages Are Better than No Jobs at All"

In explaining how serious economics is done, he says (p. 113): "A real economist starts not with a policy view but with a story about how the world works. That story almost always takes the form of a model—a simplified representation of the world, which helps you cut through the complexities."

"The Model is often smarter than you are. What I mean by that is that the act of putting your thoughts together into a coherent model often forces you into conclusions you never intended, forces you to give up fondly held beliefs. The result is that people who have understood even the simplest, most trivial-sounding economic models are often far more sophisticated than people who know thousands of facts and hundreds of anecdotes, who can use plenty of big words, but have no coherent framework to organize their thoughts."

In painting a possible future (last chapter), Krugman suggest that we might see:

Soaring Resource Prices. With increasing population and economic growth, scarce resources will become more important than ever.
Environment as Property. The cost of environmental licenses will become a significant cost of doing business.
Rebirth of the Big City. Jobs that can be decentralized are those that will be most easily eliminated by automation. Face-to-face interactions or close physical proximity will remain important. Commuting will be too expensive.
Devaluation of Higher Education. "Why should a student put herself through four years of college and several years of postgraduate work in order to acquire academic credentials with hardly any monetary value?" (Ouch!)
The Celebrity Economy. Intellectual property will become more freely-copied. "Computer manufacturers now sponsor hotshot software designers to build brand recognition for their hardware."

I hope Krugman is wrong about some of these issues because my career and investment portfolio are heavily weighted toward technology. At least I've been warned! The Accidental Theorist is certainly provocative reading. I highly recommend this book for those interested in knowing more about how the world works.

—John Schuyler, November 1999