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The Age of Diminished Expectations: U.S. Economic Policy in the 1990s
Paul Krugman's popular guide to the economic landscape of the 1990s has been revised and updated to take into account economic developments of the past three years. New material in the third edition A new chapter—complete with colorful examples from Lloyds of London and Sumitomo Metals—on how risky behavior can lead to disaster in private markets.- An evaluation of the Federal Reserves role in reining in economic growth to prevent inflation, and the debate over whether its growth targets are too low.- A look at the collapse of the Mexican peso and the burst of Japans bubble economy.- A revised discussion of the federal budget deficit, including the growing concern that Social Security and Medicare payments to retiring baby boomers will threaten the solvency of the government. Finally, in the updated concluding section, the author provides three possible scenarios for the American economy over the next decade. He warns that we live in an age of diminished expectations, in which the voting public is willing to settle for policy drift—but with the first of the baby boomers turning 65 in 2011, the U.S. economy will not be able to drift indefinitely.
244 pages, Paperback
First published January 1, 1990
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About the author
Paul Krugman
361 books1,610 followersPaul Robin Krugman is an American economist, liberal columnist and author. He is Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs, Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times. In 2008, Krugman won the Nobel Memorial Prize in Economics for his contributions to New Trade Theory and New Economic Geography.
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Displaying 1 - 16 of 16 reviews
March 22, 2016
Why isn’t the US making more of an effort to do something about its disappointing economy? This is the question Krugman sets out to answer. This book was written in 1990 after the performance of the US economy in the 1980s. But, of some concern, many of the issues echo twenty-five years later - the budget deficit, public debt (the $2 trillion in 1990 is now $17 trillion), the trade deficit (then with Japan, now with China), a banking crisis caused by mis-placed free-market rhetoric (then S&Ls, now CDOs and derivatives).
Krugman notes that productivity, income distribution and employment represent 90% of what really matters for economic welfare. The challenge is that, because there are no easy answers, they make up only 5% of the political agenda. As a result, then, and now, the US (and other economies) muddle along trapped by ‘diminished expectations’. This outcome is due "in large part to the painfulness of the measures that we [the US population] would have to take if we were serious about making a difference" and the unwillingness of politicians to embrace these challenges. The key issue, Krugman points out, is that shifts in the standard of living are determined by changes in productivity. That remains true today. In 1990 the typical American worker earned little if any more in real terms that they did in late 1970s. That remains true for earnings in 2014. The challenges of income distribution have been exacerbated since the 1990s (there’s an excellent article on this by Roger Martin in the October 2014 edition of the Harvard Business Review).
Krugman’s reminder that the big economic risk of the US debt is that it is exposed to financial crisis whenever the confidence of foreign investors is shaken, is even more true now than it was in 1990. In discussing trade deficits, Krugman points out that to reduce trade deficits you need to reduce domestic demand. The most reliable way to do this is to reduce the Federal budget deficit. In discussing the financial markets activities in the late 1980s Krugman quips "never in modern history has so much money been made by so few people in so little time." Yet by the 2000s the order of magnitude of annual earnings from financial market has increased from tens and hundreds of millions, to billions. You can understand Krugman’s conclusion that deregulation of financial markets was "the biggest single economic policy disaster of the 1980s". Krugman is prescient when he speculates that "a decade from now, environmental economics may well be on the list’ of big policy issues. (Unfortunately some leading US Republican and Australian Liberal politicians remain in denial, environmental flat-earthers, oblivious to the science). Krugman concludes with a scenario - Drift - in which the US economy tomorrow remains much like it was in the 1990s, enabled by a political system that accepts reduced prospects with equanimity. It is the scenario that unfolded in the last 25 years - in fact the US ended up worse than this, with median income declining, inequality increasing and debt skyrocketing - and in 2015 Drift seems to remain the most likely scenario for the next 25 years.
Krugman asks "Why should anyone think that foreigners continuing to buy US debt can go on almost indefinitely?" His challenge is even more relevant now.
Krugman notes that productivity, income distribution and employment represent 90% of what really matters for economic welfare. The challenge is that, because there are no easy answers, they make up only 5% of the political agenda. As a result, then, and now, the US (and other economies) muddle along trapped by ‘diminished expectations’. This outcome is due "in large part to the painfulness of the measures that we [the US population] would have to take if we were serious about making a difference" and the unwillingness of politicians to embrace these challenges. The key issue, Krugman points out, is that shifts in the standard of living are determined by changes in productivity. That remains true today. In 1990 the typical American worker earned little if any more in real terms that they did in late 1970s. That remains true for earnings in 2014. The challenges of income distribution have been exacerbated since the 1990s (there’s an excellent article on this by Roger Martin in the October 2014 edition of the Harvard Business Review).
Krugman’s reminder that the big economic risk of the US debt is that it is exposed to financial crisis whenever the confidence of foreign investors is shaken, is even more true now than it was in 1990. In discussing trade deficits, Krugman points out that to reduce trade deficits you need to reduce domestic demand. The most reliable way to do this is to reduce the Federal budget deficit. In discussing the financial markets activities in the late 1980s Krugman quips "never in modern history has so much money been made by so few people in so little time." Yet by the 2000s the order of magnitude of annual earnings from financial market has increased from tens and hundreds of millions, to billions. You can understand Krugman’s conclusion that deregulation of financial markets was "the biggest single economic policy disaster of the 1980s". Krugman is prescient when he speculates that "a decade from now, environmental economics may well be on the list’ of big policy issues. (Unfortunately some leading US Republican and Australian Liberal politicians remain in denial, environmental flat-earthers, oblivious to the science). Krugman concludes with a scenario - Drift - in which the US economy tomorrow remains much like it was in the 1990s, enabled by a political system that accepts reduced prospects with equanimity. It is the scenario that unfolded in the last 25 years - in fact the US ended up worse than this, with median income declining, inequality increasing and debt skyrocketing - and in 2015 Drift seems to remain the most likely scenario for the next 25 years.
Krugman asks "Why should anyone think that foreigners continuing to buy US debt can go on almost indefinitely?" His challenge is even more relevant now.
April 29, 2020
Great book, a little outdated but when it comes to explaining serious economics to non-professional economists (anyone without a graduate level degree in economics), there are few if any people that are as excellent as Professor Krugman.
As others explained, the main thrust of the book is that it consists of a series of articles discussing various topics from budget deficits to monetary policy and how America was entering an age where their expectations have "diminished," hence the title. As long as a politician did not create a disaster and people's standard of living did not decrease (at least not markedly), that was satisfactory.
As others explained, the main thrust of the book is that it consists of a series of articles discussing various topics from budget deficits to monetary policy and how America was entering an age where their expectations have "diminished," hence the title. As long as a politician did not create a disaster and people's standard of living did not decrease (at least not markedly), that was satisfactory.
April 1, 2018
We aren't doing anything to fix our economy because we don't want to. It would hurt too much.
Again, those are the two sentences I used to summarize this book when I read it in 1994.
Again, those are the two sentences I used to summarize this book when I read it in 1994.
June 3, 2021
Required reading. Time has not been kind to this political hack.
December 12, 2008
I read this book back when I was a college freshman as part of an economics seminar, and thought I'd crack it out again now that Krugman has won the Nobel Prize.
The book is at its finest when serving as a sort of economic textbook. Krugman is an eminently readable economics writer, and the best material in this book consists of his explanations of fundamental economic ideas: trade deficits, national saving, inflation, exchange rate policy. It is very accessible to the layman reader and both people unfamiliar with economics or those who need a refresher ought to read these segments. This desire for simplicity and clarity becomes a fault, though, when he attacks more specific economic ideas, like Japan-US relations or health care. He gives very basic sketches of arguments that could be right, but are very easily questioned, and it seems that in the desire for readability he doesn't bother with detailed defenses.
The book is at its worst when doing any kind of prognostication. My copy was last revised in 1997, just before the tech boom and crash, then 9/11, a budget surplus turning into a gigantic deficit, the current credit crisis... One of the book's main points is that Americans seem to have settled for economic mediocrity and that we might continue to amble sideways; this is where its title comes from. But in the last ten years or so the economy has been anything but placid. This plus the occasional obsolete debate or moot point here and there drag the book down a bit.
The book is at its finest when serving as a sort of economic textbook. Krugman is an eminently readable economics writer, and the best material in this book consists of his explanations of fundamental economic ideas: trade deficits, national saving, inflation, exchange rate policy. It is very accessible to the layman reader and both people unfamiliar with economics or those who need a refresher ought to read these segments. This desire for simplicity and clarity becomes a fault, though, when he attacks more specific economic ideas, like Japan-US relations or health care. He gives very basic sketches of arguments that could be right, but are very easily questioned, and it seems that in the desire for readability he doesn't bother with detailed defenses.
The book is at its worst when doing any kind of prognostication. My copy was last revised in 1997, just before the tech boom and crash, then 9/11, a budget surplus turning into a gigantic deficit, the current credit crisis... One of the book's main points is that Americans seem to have settled for economic mediocrity and that we might continue to amble sideways; this is where its title comes from. But in the last ten years or so the economy has been anything but placid. This plus the occasional obsolete debate or moot point here and there drag the book down a bit.
February 1, 2026
Paul Krugman’s The Age of Diminished Expectations remains one of the most incisive economic diagnoses of late-20th-century America. Written at the end of the post-war growth era, Krugman compellingly argues that the structural dynamics underpinning earlier prosperity had shifted: productivity growth slowed, labor markets were perennially slack, and inequality was baked into the system rather than incidental.
The book’s core strength is its rejection of wishful thinking — an insistence that policymakers and the public alike confront real constraints rather than clinging to the illusion that past growth rhythms would repeat indefinitely.
Where the argument is most useful today is in its method, not its prescriptions. Krugman teaches us to read economic outcomes as responses to deep structure, not narratives. That’s a lesson that still matters in an era where technological hype, financial speculation, and political rhetoric often outrun physical, social, and institutional limits.
One limitation is its optimism about policy responses; structural constraints prove much stickier than Krugman anticipated. But as a diagnostic framework for understanding evolving economic reality, this book still rewards careful reading.
The book’s core strength is its rejection of wishful thinking — an insistence that policymakers and the public alike confront real constraints rather than clinging to the illusion that past growth rhythms would repeat indefinitely.
Where the argument is most useful today is in its method, not its prescriptions. Krugman teaches us to read economic outcomes as responses to deep structure, not narratives. That’s a lesson that still matters in an era where technological hype, financial speculation, and political rhetoric often outrun physical, social, and institutional limits.
One limitation is its optimism about policy responses; structural constraints prove much stickier than Krugman anticipated. But as a diagnostic framework for understanding evolving economic reality, this book still rewards careful reading.
August 8, 2019
Después de leer este libro y haber desarrollado durante un semestre su texto Economía Internacional, es bastante comprensible entender por qué se hizo merecedor del premio nobel; su forma de escribir deja entrever un profundo conocimiento de la economía internacional y de sus interconexiones. En La Era de las Expectativas (escrito en 1996 y centrado en la economía estadounidense) Krugman tiene un tono casi profético donde expone como Estados Unidos se acostumbró a la mediocridad; hoy,con la ventaja del espejo retrovisor, se puede verificar la lucidez de sus análisis: la clave sigue estando en la productividad, los estados siguen insistiendo en disminuir sus déficits, la inequidad continúa creciendo (aunque para esto creo que Piketty es mejor expositor) y las economías desarrolladas se habituaron a ir a la deriva. Quizás su exposición se centró demasiado en Japón cuando debió haber mirado a China y realizar más énfasis en las reformas de Deng Xiao Ping.
December 25, 2023
As a book with a set goal, I can see how it is a well-structured book. The narrative is set out well, with examples in the next few chapters, and even the geography syncs up well. The last chapter binds it together.
Unfortunately the set goal was only tangentially related to the book title. Most of the book did not really talk about expectations - although to be fair unless you dealt with sociology it's very difficult I think to focus on just expectations. Now what it actually talked about - things that mattered vs things that were actually focused on - is well-thought-out, it's just not in sync with the title.
The other part with the one star dock is ultimately it being a historical book that dared to forecast but didn't hit the mark. Turns out the 90s wasn't so bad after all. Chalk it up to my diminished enjoyment. Still this is a good historical look of what things would have looked like at the start of the 90s.
Unfortunately the set goal was only tangentially related to the book title. Most of the book did not really talk about expectations - although to be fair unless you dealt with sociology it's very difficult I think to focus on just expectations. Now what it actually talked about - things that mattered vs things that were actually focused on - is well-thought-out, it's just not in sync with the title.
The other part with the one star dock is ultimately it being a historical book that dared to forecast but didn't hit the mark. Turns out the 90s wasn't so bad after all. Chalk it up to my diminished enjoyment. Still this is a good historical look of what things would have looked like at the start of the 90s.
November 12, 2023
It’s a good explanation of the economic status of the time but doesn’t really provide any answers. Which I wasn’t expecting from a book that describes itself as a guidebook but the author continuously poses hypothetical questions that just end with “In the end, it wouldn’t even matter and we would still be where we are today”. That’s pretty much how the entire book ends, actually. I can respect it ending that way and the facts he’s laying out because it’s all the truth, I won’t argue with that, but the way he addresses everything does leave you feeling empty, whereas his other books that are written to achieve a similar goal as he had with this one are much better executed. Still, a very helpful read!
Read
January 25, 2021Mostly interesting as a window into the evolution of Paul Krugman Thought. If Krugman is reasonably representative of the left flank of mainstream economics, then it's amazing how much he and the Democratic Party have shifted leftward in the past twenty-odd years (which is overall a very good thing.) Then again, the economic problems of the 1990s -- including concerns about Japanese trade competition and an impending Social Security meltdown in 2011 -- seem pretty quaint compared to the mess we're facing today.
March 15, 2021
difficult to predict especially the future
May 28, 2025
Debo confesar que la obra de Krugman me confrontó con paradigmas económicos que solemos dar por sentado en el análisis político global. Publicado originalmente en 1990, este texto demuestra una claridad perturbadora sobre dinámicas que hoy definen nuestro orden mundial.
Krugman plantea una tesis radical: el declive relativo de Estados Unidos como potencia hegemónica no responde a fallas de política exterior -como sostendría la escuela realista de relaciones internacionales- sino a transformaciones estructurales en la economía global. Su análisis de la productividad estadounidense versus el ascenso asiático anticipó con treinta años de antelación lo que hoy vivimos como la "pugna estratégica" entre Washington y Pekín.
El núcleo argumental del libro cuestiona la noción keynesiana de que los gobiernos pueden estimular ilimitadamente el crecimiento mediante políticas fiscales expansivas. Krugman demuestra cómo, tras la crisis petrolera de los 70, las economías desarrolladas entraron en lo que denomina "expectativas limitadas" -un estado donde los actores económicos internalizan que el crecimiento robusto ya no es la norma. Este fenómeno tiene profundas implicaciones geopolíticas: cuando las grandes potencias no pueden "comprar" estabilidad social mediante crecimiento económico recurren necesariamente al nacionalismo económico y al proteccionismo comercial, tal como hemos visto resurgir en la última década.
Desde mi experiencia en negociaciones comerciales internacionales, el capítulo sobre "la política de la productividad" resulta particularmente iluminador. Krugman desmonta el mito de que las guerras comerciales son herramientas efectivas para recuperar ventajas competitivas. Su análisis de cómo Japón -entonces el "gran rival económico"- estaba condenado a enfrentar límites demográficos y de innovación parece escrito hoy para el caso chino.
Donde el libro muestra sus limitaciones es en subestimar el factor tecnológico como disruptor global. Krugman escribió antes de la revolución digital y su marco analítico no previó cómo la economía de plataformas reconfiguraría las cadenas de valor internacionales. Tampoco anticipó el papel de las criptomonedas en desafiar la hegemonía del dólar, aunque su escepticismo sobre los mecanismos alternativos de reserva resulta profético tras el fracaso del euro como contendiente serio.
Para los profesionales de relaciones internacionales, esta obra ofrece tres lecciones fundamentales: primero, que las crisis económicas estructurales generan inevitablemente tensiones geopolíticas; segundo, que el poder blando depende críticamente del desempeño económico doméstico; y tercero, que los organismos internacionales pierden relevancia cuando no pueden ofrecer soluciones a problemas de productividad nacional.
Krugman, conocido por su estilo mordaz, aquí muestra un lado más académico pero igualmente preciso y ejecutor. Su advertencia sobre cómo los países pasan de ser "tomadores de precios" a "hacedores de crisis" en el sistema global debería ser lectura obligada en las cancillerías latinoamericanas que aún operan con manuales de la Guerra Fría.
¿Sigue vigente su análisis en la era de las sanciones económicas masivas y las guerras de subsides? Parcialmente. Lo que Krugman no pudo prever fue cómo la financiarización extrema y los estímulos cuantitativos poscrisis 2008 crearían un mundo de dinero barato que retrasó -pero no evitó- muchas de las contradicciones que él diagnosticó.
Recomiendo esta lectura junto con trabajos más recientes sobre desglobalización, pues conforma la base para entender por qué el multilateralismo económico está en terapia intensiva. Para los que analizamos el ascenso del Sur Global, el libro ofrece un marco para diferenciar entre crecimiento coyuntural (como el de India) y desarrollo sostenible (el aún esquivo para África).
Krugman plantea una tesis radical: el declive relativo de Estados Unidos como potencia hegemónica no responde a fallas de política exterior -como sostendría la escuela realista de relaciones internacionales- sino a transformaciones estructurales en la economía global. Su análisis de la productividad estadounidense versus el ascenso asiático anticipó con treinta años de antelación lo que hoy vivimos como la "pugna estratégica" entre Washington y Pekín.
El núcleo argumental del libro cuestiona la noción keynesiana de que los gobiernos pueden estimular ilimitadamente el crecimiento mediante políticas fiscales expansivas. Krugman demuestra cómo, tras la crisis petrolera de los 70, las economías desarrolladas entraron en lo que denomina "expectativas limitadas" -un estado donde los actores económicos internalizan que el crecimiento robusto ya no es la norma. Este fenómeno tiene profundas implicaciones geopolíticas: cuando las grandes potencias no pueden "comprar" estabilidad social mediante crecimiento económico recurren necesariamente al nacionalismo económico y al proteccionismo comercial, tal como hemos visto resurgir en la última década.
Desde mi experiencia en negociaciones comerciales internacionales, el capítulo sobre "la política de la productividad" resulta particularmente iluminador. Krugman desmonta el mito de que las guerras comerciales son herramientas efectivas para recuperar ventajas competitivas. Su análisis de cómo Japón -entonces el "gran rival económico"- estaba condenado a enfrentar límites demográficos y de innovación parece escrito hoy para el caso chino.
Donde el libro muestra sus limitaciones es en subestimar el factor tecnológico como disruptor global. Krugman escribió antes de la revolución digital y su marco analítico no previó cómo la economía de plataformas reconfiguraría las cadenas de valor internacionales. Tampoco anticipó el papel de las criptomonedas en desafiar la hegemonía del dólar, aunque su escepticismo sobre los mecanismos alternativos de reserva resulta profético tras el fracaso del euro como contendiente serio.
Para los profesionales de relaciones internacionales, esta obra ofrece tres lecciones fundamentales: primero, que las crisis económicas estructurales generan inevitablemente tensiones geopolíticas; segundo, que el poder blando depende críticamente del desempeño económico doméstico; y tercero, que los organismos internacionales pierden relevancia cuando no pueden ofrecer soluciones a problemas de productividad nacional.
Krugman, conocido por su estilo mordaz, aquí muestra un lado más académico pero igualmente preciso y ejecutor. Su advertencia sobre cómo los países pasan de ser "tomadores de precios" a "hacedores de crisis" en el sistema global debería ser lectura obligada en las cancillerías latinoamericanas que aún operan con manuales de la Guerra Fría.
¿Sigue vigente su análisis en la era de las sanciones económicas masivas y las guerras de subsides? Parcialmente. Lo que Krugman no pudo prever fue cómo la financiarización extrema y los estímulos cuantitativos poscrisis 2008 crearían un mundo de dinero barato que retrasó -pero no evitó- muchas de las contradicciones que él diagnosticó.
Recomiendo esta lectura junto con trabajos más recientes sobre desglobalización, pues conforma la base para entender por qué el multilateralismo económico está en terapia intensiva. Para los que analizamos el ascenso del Sur Global, el libro ofrece un marco para diferenciar entre crecimiento coyuntural (como el de India) y desarrollo sostenible (el aún esquivo para África).
September 22, 2012
Thanks to Michelle Nanney for giving me this book. It raised good points how Americans are not holding their politicians accountable for the lack of economic policy development in the US government.
It also puts isolationism into perspective explaining that it would not cripple the economy. He does not come out and support it, but just kid of throws that out there as an economist.
He talks about the impact of inflation, deflation, bubble economies, the S&L scandal, the budget and trade deficits, and most important of all, he explains how to get America's economy running again through productivity (this part needs to be read) and investing in education. His approaches are all long term, something that politicians are not interested in. I wish we had more long term oriented politicians, but sadly that's not how it seems to work.
It may not be a page turner, but is interesting for those who care about the American government and its impact on the economy.
It also puts isolationism into perspective explaining that it would not cripple the economy. He does not come out and support it, but just kid of throws that out there as an economist.
He talks about the impact of inflation, deflation, bubble economies, the S&L scandal, the budget and trade deficits, and most important of all, he explains how to get America's economy running again through productivity (this part needs to be read) and investing in education. His approaches are all long term, something that politicians are not interested in. I wish we had more long term oriented politicians, but sadly that's not how it seems to work.
It may not be a page turner, but is interesting for those who care about the American government and its impact on the economy.
September 13, 2008
Danielle rec's this one. Plus I've learned the secret of not staying up too late. Read non-fiction. Book was updated 2003. --
Helped me to appreciate some economic issues, i.e. unemployment vs. inflation. But the rest didn't stick with me.
Helped me to appreciate some economic issues, i.e. unemployment vs. inflation. But the rest didn't stick with me.
October 31, 2008
I was thrilled that this year's Nobel in economics was given to Krugman. This book is a classic. It was written before he started writing for the NY Times, but shows the same incisive and illuminating writing he has come to be known for.
July 10, 2016
Paul Krugman avoids all forms of sensationalism (it's virtually the point of the book) as he parses economic reality for the rest of us.
Displaying 1 - 16 of 16 reviews