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My Book Reviews

Category: Economics (global economics)
Published: 1996
Read: 1997
Reviewed: Sep 2009

Lester Thurow, a respected liberal economist and noted scholar, wrote this book in 1997. It goes into detail about 5 trends that will result in profound social and economic changes in the future: (1) the end of communism (2) the shift to knowledge-based industries (3) massive demographic changes (4) a global economy (5) and a world with no dominant power.

There were a few problems that I had with this book. Firstly, so much has been written about these particular trends over the past few years, that many of the Thurow's observations (no job creation in Western Europe for two decades) as well as his proposed solutions (higher savings rates, education and training) are common knowledge by now. Second, his tone is a bit apocalyptic at times. And third, the biggest problem I have with these kinds of books is that the consequences of macro-economic trends that deal with complex, multi-variable processes (like trade theory and capital flows) are so incredibly difficult to predict that even the most knowledgeable experts on the subject are still, essentially, guessing. Hence, I tend to be somewhat disinterested in reading about these kind of theoretically-dense predictions, even though Thurow manages to nail a couple right on the head:

  • "What does democracy mean when political parties don't have different ideological beliefs? elections become popularity polls"
  • "From a savings perspective the tax laws permitting home-equity loans will probably prove to be one of America's biggest economic mistakes."

The book covers a plethora of economic topics, like: the WTO, the World Bank, trade deficits, income inequalities, comparison of economic systems, observations and analysis of basic economic activities (savings, investment, consumption), and a prognosis for many major countries. The book also spends a lot of time on the co-existence of capitalism and democracy, and manages to make a couple of very valuable observations:

  • Thurow on capitalism: "How can capitalism promote the values that it needs to sustain itself when it denies that it needs to promote any particular set of values that all?".
  • Thurow on democracy: "[Democracy] works best where it does not have to make a zero-sum or negative-sum choices because it has an expanding pie or resources to distribute. But today democracies have none of those advantages."

Admirably, when Thurow makes candid remarks about the structural problems of the American economy, he doesn't hide behind the values-free shield of economic theory and resort to the typical sanitized description of America's "lack of investment" to describe the selfish nature of the over-consumption of Americans.

I distinctly remember reading a particular point that Thurow made in this book - that since communist Russia fell, there is now no economic system to compete with capitalism. Capitalism is a system that is based on competition, yet capitalism itself now has no competition. I thought this was an incredibly profound remark (I was much younger at the time that I read it, so perhaps it wasn't that profound). Consequently, since the fall of communism, the United States has experienced the largest scandals (Enron), scams (Madoff), and meltdowns (mortgage) in history, as well as the fracture of the American political arena into polarized parties that have no ability to solve any long-term social and economic problems. I believe these events are a result of an unchecked rise in systematic greed in America due to the aforementioned lack of any competing political ideology. And although this development looks like a purely social and political issue, and not an economic one, there may be more to it than that. It could be argued that this increase in greed has led to more systematic economic risk. I don't think it's an accident that we've had 2 drops of 45% of more in the stock market in the last 10 years (2000-2010), after having only 2 in the previous 100 years (1900-2000). This fact is particularly surprising considering the economy has been operating as a less-volatile, service-based economy and within a favorable macro-economic environment during that time frame. Although I run the risk of sounding apocalyptic too, this trend of rising greed and its effect on the economy is, at the very least, worthy of monitoring - especially since America will be exposed to many possible systematic economic risks over the next 20 years or so (like a state bankruptcy, Social Security bankruptcy, a Treasury default, and potential financial troubles due to unfavorable age-related demographic changes).

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