Oppose Economism

The normal economist's view is that economic changes drive political changes. Thus, the Depression led to the New Deal, for example. In our time, global competition, the IT revolution, and the demand for high skills led to higher inequality, which in turn meant a shrinking constituency for a populist politics and a larger constituency, among the winners, for the kind of top-down, class-warfare politics that today's GOP engages in.

Krugman had always believed— even "when I began working on this book"—that this was how things unfolded. "Yet," he writes of our era:

I've become increasingly convinced that much of the causation runs the other way—that political change in the form of rising polarization has been a major cause of rising inequality. That is, I'd suggest an alternative story for the last thirty years that runs like this: Over the course of the 1970s, radicals of the right determined to roll back the achievements of the New Deal took over the Republican Party, opening a partisan gap with the Democrats.... The empowerment of the hard right emboldened business to launch an all-out attack on the union movement, drastically reducing workers' bargaining power; freed business executives from the political and social constraints that had previously placed limits on runaway executive paychecks; sharply reduced tax rates on high incomes; and in a variety of other ways promoted rising inequality.