Diminished Great Expectations

The first thing about The Age of Diminished Expectations that struck me is the irony in Krugman's discussion of the diminished expectations of a society so caught up in the American Dream, and the pursuit thereof, that many of its members fall victim to the "irrational exuberance" Krugman would later refer to in The Great Unraveling. The key delineation is that the diminished expectations Krugman discusses in this volume are popular expectations about the management and overall performance of an economy; Krugman paints a gloomy picture about the ability of fiscal/monetary policy to productively improve economic conditions, especially with relation to social issues. The reader might be led to believe that only free markets, independent of arbitrary government intervention, can resolve the issue, but that such a solution requires a business cycle that the socially-minded among us would not accept. As such, Krugman illustrates, American expectations have been tempered to expect and consent to government mismanagement, so long as it steers the economy clear of disaster. If such an assessment of the American mentality is true, what implications does this attitude have for American economic philosophy, especially considering a large part of America's historical success has been thanks to the encouragement of the American Dream.

Is the unrestrained pursuit of the American Dream (a.k.a. as much wealth as one could acquire with as little effort as possible) something we want to encourage in our society? Is it ok that "a few Americans have prospered to an unprecedented extent," conceivably at the expense of the general welfare? Perhaps a better way of phrasing this point is to ask if legislation intent on restricting such absolute freedom corresponds with the values we want to promote in our society. On the other hand, do we want to remove the major disincentives to failure in such commercial enterprises? Conservative economists tend to promote equality of opportunity over equality of conditions precisely because they want markets to operate as such. Since Krugman convincingly points out that productivity per worker is the main determinant of the standard of living, are government programs designed to keep consumption at high levels good policy choices? Invoking the classical choice of guns or butter, Krugman affirms that investment is a better use of government, communal funds than butter for either the rich or the poor. Investment, especially through money markets tends to invest in businesses based on their rate of return, rather than their socioeconomic status, though that does impair access to capital and other such factors affecting equality of opportunity. By using the government to aid this minimalist extent, likely carried out by a inflation-phobic Chairman of the Federal Reserve, Americans could use their own motivation to increase their standard of living and consumption. But then again, does this meet up to our best expectations? Or are we bound to be disappointed?