The age of diminished expectations Book

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.