Memo To: Treasury Secretary Larry Summers
From: Jude Wanniski
Re: How the Mighty Have Fallen
Did you see the NYTimes Sunday "Book Review" section? How sad it was to see the Times decide to throw one of its onetime heroes in the "economics science" into the w.c. and flush him away. You were probably getting your own economics degree at Harvard at the time Lester Thurow of M.I.T. was the fair-haired boy of the liberal Political Establishment. At the time we were cooking up supply-side economics in the 1970s, Thurow was celebrated by the Times on its news and editorial pages as the likely successor to the aging Paul Samuelson, also of M.I.T. The liberal Establishment, of which you of course are a product, has to nurse along fair-haired boys in preparation for seats of power in government. You have now made it to the pinnacle, as Treasury Secretary of the United States, with Times editors helping you every step of the way with stories and songs about how brilliant you are. Right behind you is Paul Krugman, also of M.I.T., who gets a by-line in the Times every time he announces that the world is going to hell in a handbasket, that he doesn't quite know what to do, but all other economists are not likely to figure it out either.
In the Times Sunday we find Sylvia Nasar, one of the neo-Keynesian Ph.D. economists on the Times roster of reporters/commentators, reviewing Thurow's latest book:Building Wealth: The New Rules for Individuals, Companies, and Nations in a Knowledge-Based Economy. I cringe every time I think of how Dr. Nasar so brutally disposed of Dr. Thurow's latest bloviations. Back when he was the Times favorite knight in black armor, Thurow ridiculed supply-side economics and its chief practitioner, R. Reagan, by insisting we had Reached the Limits to Growth, and were now in a "Zero-Sum Society." That is, prior to Lester getting his Ph.D. the world had been a world of plenty, but now it was a world that had run out of oil and lebensraum, to coin a phrase. From now on, he and the Times told us repeatedly, that because the world had run out of everything, governments had to take from the rich and redistribute to the poor, and everyone had to stop having babies.
Sometime after Reagan was elected and his tax cuts countered the monetary deflation of Jimmy Carter's Fed appointees, I was on a Crossfire show with Dr. Thurow, on a day when the Dow Jones Industrial Average had hit a new high, 2000 I think. Thurow insisted the economy was headed for the new recession he had been predicting. When I pointed out that the marketplace was saying the opposite, with the value of the nation's capital stock hitting a record high, Thurow's comeback was that the Dow Jones Industrial Average hit a record high in 1929 before the Great Depression! Ergo, the stock market predicts recessions when it reaches record highs. Poor Lester, missing one of the greatest bull markets in history -- while spending his time as dean of M.I.T.'s Sloane School of Management, teaching his students all about the bubble on Wall Street and the Zero-Sum Society.
What the Times now is saying, Larry, is that Thurow is an absolute embarrassment to the liberal Establishment, a constant reminder that the Times fell bigtime for his baloney, and that he should stop writing books that are getting sillier all the time. When aging ballplayers become embarrassments to the team, they usually know enough to retire and open bowling allies or steak houses to earn a living. Alas, the head of the M.I.T.'s "Sloan School of Management" would not dare open a hot dog stand, as the business practices he teaches would cause him to lose his life savings, and perhaps be forced into a life of crime. So my advice to you, Larry, is to find a way as quickly as possible to distance yourself from your friends at M.I.T. and the NYTimes, and stop telling the world that the President will veto any serious tax cuts sent to him this year, even if they are bipartisan. Just look at the nosedive the stockmarket has been taking today, Wall Street having reflected on your weekend comments to this effect. Come to think of it, Lester Thurow would probably say a falling stock market predicts good times ahead. What do you think?
July 25, 1999
A leading economist attempts to explain what it takes to make money in the New Economy.
By SYLVIA NASAR
Lester C. Thurow's ''Building Wealth: The New Rules for Individuals, Companies, and Nations in a Knowledge-Based Economy'' looks like a stock market tip sheet and reads like a diet book. But despite the stacks of 20-, 50- and 100-dollar bills on the jacket and the breathless prose, it's not nearly as useful as either.
Thurow -- one of the few economists in America who are almost household names -- wants to be your guide to the New Economy. You know what he's referring to: It's global! It's chaotic! It's totally unpredictable! Don't bother picking a career. There are no careers. Don't even try to target your next product. Nobody knows where the profits will be. Forget about oil, gold, land, factories and all that other outmoded stuff that ''for all of human history'' has been the source of success. Suddenly, Thurow says, ''knowledge is the new basis for wealth.'' Blithely ignoring the fact that know-how has always been a fuel of 20th-century capitalism, he adds dramatically, ''This has never before been true.''
Though it's high-tech, Thurow's New Economy is ruthlessly Darwinian, populated by a handful of supersuccesses and vast numbers of basket cases. He acknowledges that it is now the best of times in America, but hardly sees this as relevant. For him, prices and wages are always falling. Workers are always losing their jobs. Companies are always going out of business.
It's also a world without borders: ''The third industrial revolution is moving us from national economies to a global economy.'' Nasty as things are now, Thurow promises they will get even nastier. ''The transition from national to global is going to be far more turbulent than the transition from local to national'' -- a pretty radical thought considering that mismanagement of the Old Economy produced not just the Great Depression but Hitler's Germany and Stalin's Russia.
The real problem, to Thurow's way of thinking -- he is an enthusiastic admirer of ''empire builders'' like the slaveholding Pharaohs -- is that nobody's in charge. National governments have long since lost the power to control their economies, he claims. That does not imply that politicians now have to pursue sound policies if their nations are to benefit from expanded trade and freer capital flows. It means we need a world government. Alas, Thurow adds without a hint of irony, Congress just won't go for it.
This is a sales pitch, not a serious argument. Where others might trot out hypotheses and hard evidence, Thurow reaches for metaphors and glib generalities.
Never mind. You don't read a diet book to learn science or history. You read it to learn how to get thin. Too bad the ''new rules'' Thurow is selling for building ''new wealth pyramids'' turn out to be a collection of truisms that are neither new nor stated in an interesting way. As Thurow himself notes, John D. Rockefeller figured out Rule 1 (''No one has ever become very rich by saving their money'') long before Bill Gates. Yes, people do get rich by exploiting new opportunities.
Rule 13 is no better:
"Luck is necessary. Talent, drive and persistence by themselves aren't enough to get wealthy.'' Better be at the right place at the right time, Thurow advises.
Pretty thin stuff.
Sylvia Nasar, the author of ''A Beautiful Mind,'' reports on the economy for The Times.