Rating: 
Summary: For Whom Did the Author Intend This Book?
Review: Let me first confess: I have retired from a career as a physicist/engineer and approach economics for the sole purpose of guiding my investments. Up front, this book provides the most crystal clear explanation I have ever seen of the interplay between trade deficits, dollar exchange rates, foreign investments (in US debt & equities), and US budget deficits. There is also an inspired, if brief, explanation of the advantages accruing to the US by having the US dollar as the principle medium of international settlements. For this perceptive and lucid discussion of international trade and payments, alone, this book is worth its price. The author's view that we are on a slippery slope to prolonged recession is widely if not universally held among economists of sound reputation.
The book lays out some ideas for averting the worst of possible economic futures. I would agree that many are idealistic and probably unworkable. But if this book does no more than prime an intelligent public dialog on the subject of deficit financing, it will have helped this democracy function with it's collective eye on the most important questions.
The reviewer who gave this volume such a low score is himself a "part of the problem." Everywhere I wander in search of economic enlightenment, I find doctrinaire petty political philosophers who are captured by this or that "school" of economics, finding truth exclusively in Keynes, M. Friedman, Laffer/Gilder or some other. The problem is that none of these "schools" or their mindless proponents would recognize a real dynamic model capable of prediction. Economics has not yet become a mature science: it has no equivalent to quantum mechanics which can predict the outcome from a set of initial conditions. So almost all economic writings are anecdotal and filled with special terminology that poorly substitutes for mathematical precision. One can comfortably adopt any particular "school" that fits one's world view because there is no predictive test to say that one or the other is wrong. I have the intuition, admittedly unschooled, that both Keynes and Friedman contribute to an accurate set of expectations.
Thurow certainly does NOT advocate prolonged US trade deficits of the sort we have now. But his view that foreign investment in the US drives our trade deficit, and not the other way around, is supported by none other than the libertarian, Ayn Rand disciples at the CATO Institute. See, for example, work of Daniel Griswold. The CATO work also sees global economic health in a balance which favors capital investment in the US and a constrained non-zero trade deficit.
Rating: 
Summary: Exports
Review: Mr. Thurow and Mr. Pawley have completely forgotten that the United States did not depend on exporting to develop its economy after the colonial period because its industrial growth was based on domestic consumption. At some point in the future, the same will happen to China when American consumers can no longer absorb cheap Chinese exports, yet China will continue to grow. This is a basic lesson from economic history which neither the author of this book nor Mr. Pawley seems to know.
Rating: 
Summary: A somewhat timid picture
Review: Much of this book has nothing to do with China; yet Thurow has a good deal to say about China in this book. Having followed Thurow over the years on his various comments on China, I have reluctantly concluded that just about everything he has had to say about China has turned out to be unfortunately wrong.Thurow it was who declared that SARS would get out of control in China and that it would be necessary to quarantine the whole country from the rest of the world. This is just one example, but you get the idea. Thurow does not disappoint me in this book. Here in this book Thurow thinks China's gross GDP will "probably" be larger than America's by 2100. Maybe he didn't read the book by Gregory Chow, the Princeton econometrist, who calculates that China's GDP in PPP will be equal to America's by 2020. Now, since nobody knows what the currency exchange rates will be in the future, the PPP (Purchasing Power Parity in constant dollars) is the only reliable guide for comparison. It is likely that China's gross nominal GDP will still be smaller than America's by 2020. But that is unlikely to last long. China's economy will be larger than America's LONG BEFORE 2100. Thurow emphasizes that the gross GDP doesn't matter in any case; only the per capita GDP does. While I tend to agree with his prediction that China's per capita GDP will still lag America's by 2100, I have trouble understanding his statement that the gross GDP is "irrelevant." I'm prepared to excuse this on the fact that he is writing merely as an economist. But no historian would make this mistake. After all, the USSR was a threat precisely because its economic base was large enough to sustain big military spending, not because its per capita income was anywhere near that of the of the United States. Still, this book makes good reading because Thurow makes his arguments and reasoning pretty clear (and this is typical of him). I would urge other readers to bear in mind that even Nobel Laureates in Economics have violently disagreed with one another, and that FDR once wished he could find a one-armed economist......just so that he (or she) could not say "on the other hand."
Rating:
Summary: Amateurish on China
Review: On the subject of China, Lester Thurow (and other readers) may do better to turn to the writings of professionals who actually know a thing or two about that vast and booming market: Peter Nolan of Cambridge University, Nicholas Lardy of Yale and Washington, Nicholas Kristof of the NY Times, Jim Rohwer of CSFB and the Economist, William Overholt of Harvard and RAND, and Gregory Chow of Princeton. All that Mr. Thurow can come up with on China in this book is misinformed preconceived notions and incorrect raw data, mixed together with some vague generalizations and essentially amateurish gibberish unbecoming a tenured professor at the august MIT.
Rating:
Summary: How can one be wrong so much and still be called an expert?
Review: One of the wildest claims in this book has to do with the question of infrastructure. Thurow claims India has better infrastructure than China. But today the chairman of GE, Jeff Immelt, told his audience in India that they would never catch up with China unless they improve their infrastructure. Immelt said India lagged behind China in health and in things like airports and roads. And this, he said, was a major reason why India was a "disappointing" market for GE. Somebody must be wrong - either the GE chairman or the MIT professor. There are many other errors in this book, not only in facts and statistics, but also in analysis. (Another whopper, of the analysis variety: Thurow says that Confucianism and Communism combined to emphasize education in China, and that this is one reason why China is so highly educated for a developing country. I don't know about Confucianism, but I do know that for years Mao decimated higher education in China, so that at one point college students had the reading ability of a junior high student while junior high students could barely read.)
Rating: 
Summary: Infrastructure
Review: One of the wildest claims in this book has to do with the question of infrastructure. Thurow claims India has better infrastructure than China. But today the chairman of GE, Jeff Immelt, told his audience in India that they would never catch up with China unless they improve their infrastructure. Immelt said India lagged behind China in health and in things like airports and roads. And this, he said, was a major reason why India was a "disappointing" market for GE. Somebody must be wrong - either the GE chairman or the MIT professor. There are many other errors in this book, not only in facts and statistics, but also in analysis. (Another whopper, of the analysis variety: Thurow says that Confucianism and Communism combined to emphasize education in China, and that this is one reason why China is so highly educated for a developing country. I don't know about Confucianism, but I do know that for years Mao decimated higher education in China, so that at one point college students had the reading ability of a junior high student while junior high students could barely read.)
Rating:
Summary: Creating a Better Global Economy
Review: Professor Thurow has written one of the better books on improving global prosperity as knowledge-based industries and third-world industrialization expand through broader use of capitalism and new communications technologies. He accurately points out the major risks (including not participating in global trade, the out-of-control U.S. trade deficit and plunging dollar, Japan's unwillingness to clean up its bankrupt borrowings, lethal global viruses, poorly protected intellectual property rights, and the need for less expensive drugs for poor people). His prognosis is grim. "Those who leap sometimes lose, but those who do not leap always lose. Fortune favors the bold." The solutions he proposes are extreme and bold. Countries that are opting out of globalization had better find some way to participate. This problem will be most difficult in sub-Saharan Africa. To help with this, underdeveloped countries should focus on improving education. The World Bank should focus solely on facilitating this shift towards improved education. The IMF should provide insurance for international liquidity rather than micromanaging individual economies. New growth should focus away from exporting commodity items based on low cost labor. After an inevitable crash in the dollar, he foresees much manufacturing returning to the United States to take advantage of newly lowered costs (in dollar terms) here. Imports will be permanently more expensive, and the standard of living in the United States will fall by at least 20 percent. The only likely palliative is to create advance plans with the IMF to handle the crisis when it occurs. The other alternative is for foreign countries to stimulate their economies more than they are, and this is unlikely to occur. Intellectual property rights should be adjusted to reflect the ability of the purchaser to pay and the country's track record in honoring intellectual property rights. In addition, global industries should get better at protecting themselves by making piracy harder to accomplish. The film industry should focus on this now. Income differentials can be reduced through a combination of more education, skill enhancement and replacing payroll taxes for benefits with value-added (sales-based) taxes. Cultural threats will be overcome as countries make more efforts to export their own cultures . . . creating a newly-merged global culture. As for American hegemony, Europe and Japan have to be willing to commit people and resources to share the costs and efforts of solving worldwide problems . . . including military ones. As an institutional mechanism for making these adjustments, Professor Thurow proposes adding Chief Knowledge Officers for countries and companies. While companies often have such roles, countries seldom do. The national CKO "provides honest intelligence about technology and its interaction with the economies and society." With thoughtful direction, he feels that countries can create national advantages as Singapore and Ireland have done. The potential solutions in many cases are not developed in much detail. Many readers will wonder why take those directions, rather than some other ones. The basic logic seems to be to enhance the global economy in ways that more fairly reward all countries and companies than the current system does. Such balance, while desirable, will probably have to be created by tough negotiations and competition rather than greater international cooperation. I found the proposed solutions to be naive about how willing countries, companies and financial institutions are to change. I suspect that these potential compromises would only occur after a long period of global problems . . . such as an extended global depression, breakout of wars using weapons of mass destruction, or population-decimating epidemics. A more realistic direction is to focus on what to do when the U.S. economy crashes after the dollar plunges. Companies will probably continue to look out for themselves. For U.S. companies, the advantages of selling more abroad will be irresistible when nondollar earnings become so much more valuable. Those who depend on exporting into the U.S. will have big problems. Professor Thurow is probably right that we are headed for a period of weak global economic growth. Currency instability will probably get worse before it gets better. Who's going to pay for stability in an impoverished world? No one, I suspect. I graded the book at five stars for identifying important issues, and three stars for the proposed solutions and their explanations. Those two grades averaged to four stars for the book. I do recommend this book. It will help you grasp the difficult times and choices ahead. Forewarned is forearmed. Get started now! Let me share one final caution about this book. Although there are no misspellings, it has an annoying number of misused words (principle for principal and vice versa). It could have used some more careful proof-reading.
Rating:
Summary: Part of the Problem
Review: Six Hours of your life that you should have spent with your family. Simply put, Fortune Favors The Bold, by Lester Thurow is a complete waste of time. One-sided and intellectually dishonest, it does not stand on its own feet. It is a perfect example of the pro-government, pro tax-and-spend editorializing that mars the modern teaching of economics and modern (US) economic policy. If you at best it should be read in tandem with another book such as
The Great Depression: An International Disaster of Perverse Economic Policies, by Thomas E. Hall, and J. David Ferguson
http://www.amazon.com/exec/obidos/tg/detail/-/0472096672/104-4876281-4197524?v=glance&st=* or
Free to Choose: A Personal Statement
by Milton Friedman and Rose D. Friedman
http://www.amazon.com/exec/obidos/ASIN/0156334607/qid=1066687255/sr=2-1/ref=sr_2_1/104-4876281-4197524 The book serves exactly ONE purpose it shows that there really are people who openly advocate such intellectual caca as "tax and spend" and prolonged American trade deficits. Consider page 73:
"As a result, if there is to be a vigorous economic recovery, the launch vehicle will have to be federal government taxes and expenditures. There are no other possibilities. President Bush's current fiscal package . . . seems unlikely to be enough. . . . this requires bigger deficits in the short run combined with expectations of long-run budget surpluses." On page 101 Thurow (correctly) describes the passing of the American steel and auto industries as the inevitable result of free trade and globalization. He does not bemoan it a bit. He recognizes that in the long run trade and capital flows will inevitably balance. Once, American jobs were lost as we imported foreign goods. Inevitably foreign jobs will be lost, (and American jobs gained) as international trade finds its inevitable balance. THAT is a problem to Thurow. Although he didn't seem to care how many American jobs were lost how quickly when our industries died, on pp 156-157 he shows a real concern if foreigners might lose their jobs to Americans. Thurow writes:
"To keep their economies moving forward, the rest of the world ahs become dependent up[on the $450 billion worth of net demand that flows from the American trade deficit. If those inflows were to quickly disappear, the damage would be extensive." Autos are a good example. With a sharp fall in the value of the dollar Americans would not be able to afford the 2.9 million cars they imported in 2000. . . . How long would it take American factories of foreign firms to make an extra 2.9 million cars? . . . (about) three months. . . . (F)oreign manufacturers . . .would have to shut down the foreign facilities now producing those cars."
Rating:
Summary: China's GDP
Review: Thurow is quite mistaken when he projects China's and America's per capita GDP this way: "In 2000," writes Thurow, "China's per capita GDP was $847 using exchange rates to convert yuan to dollars. America's was $36,868......China may become an important economic power in the future, but that future is distant. To demonstrate this latter point to yourself, take out your hand calculator and key in both China's per capita GDP and America's per capita GDP......Unless you key in something quite unlikely for China's growth rate over the next century, you will find that in 2100 China will still have a per capita GDP far below that of the United States." (p.205) There are several things wrong with this reasoning. First of all, Thurow has forgotten that currency exchange rates change over time. Since the yuan is undervalued (this is the consensus of most economists), it is likely to rise versus the dollar. No one can predict how far it will go one hundred years from now. China's income gap with the US will be quickly narrowed as much by a rising yuan as by actual income growth. Second, one century is a long time, and Japan caught up with America in far less. (Thurow himself acknowledges this on p. 196: "Because of the economic reversals of World War II, Japan's per capita income had fallen to less than 10 per cent of that of the United States in 1950. By 1989 Japan had a per capita income above that of the United States in currency terms ($36,966 versus $25,980)..." It doesn't take a stretch of the imagination to think that what the Japanese managed to do the Chinese can easily repeat, if only by a different route (such as less dependence on exporting). Japan's WW2 reversals are similar to China's reversals under Mao. Third, Thurow is using the nominal GDP rather than the PPP, which reflects real income. As for the claim that China's per capita income will still lag behind America's by 2100, I'm prepared to agree, just as I accept Thurow's statement that a "Chinese Century," if any, will be in the 22nd and not the 21st century. However, the notion that China's economy will only be "probably" larger than America's by 2100 cannot entertained, as China's gross GDP is already projected to equal America's by 2020 in PPP terms and not long afterwards in nominal terms (depending again on the exchange rates) - EVEN ALLOWING FOR SLOWING GROWTH. (Gregory Chow, "China Economic Transformation," 2002) By 2100, China's economy is unlikely to be less than TWICE America's (and probably far larger than that). Thurow also errs when he faults China for its huge trade surpluses. (p. 211) While China is indeed running trade surpluses with the US, China's overall trade balances are in the red (or close to zero). This is well-known. Thurow's knowledge of China obviously is amateurish. He may be right that the money may be better spent on expansionary fiscal spending, fixing unemployment, etc. but the large foreign currency reserves have their own logic, as the stability of China's economy is of paramount importance (even more so than growth). If "it does not make any sense" to Thurow, it certainly does make sense to such great economists as Joseph Stiglitz and Robert Mundell, both of whom write intelligently about China (besides being Nobel Laureates). Thurow should at least read Jim Rohwer and Nicholas Lardy before pontificating on a subject he knows so little about.
Rating:
Summary: Forecasts
Review: Thurow says China is not going to be an economic power of any importance except perhaps in the "distant" future. I beg to differ. In the International Energy Outlook 2003 published by the Energy Information Administration of the US Department of Energy, China's GDP is projected to be $5,085 billion in 2025 - the third largest in the world after the US and Japan, and considerably larger than Germany's $3,811 billion, France ($2,781 billion), Britain ($2,528 billion), or India ($1,775 billio). And these figures are in nominal GDP in constant 1997 dollars and assume the exchange rates to be unchanged. Will the world's third largest economy not be considered an economic powerhouse except perhaps in the "distant" future, as Thurow asserts? To put it in perspective, Germany is the world's third largest economy today, and yet its nominal GDP is only 25% America's (about $2.5 trillion). Few people would dispute that Germany is an economic powerhouse, small as it is. To be sure, America will still be much bigger than everyone else (except for the EU): $19,285 billion. Japan in 2025 will only be worth $6,680 billion - a bit bigger than China and still far behind the US. (Japan will be one third the size of America, but then Japan's population will likely be only one third as large as America's - or less.) China's $5 trillion will be just over one-quarter America's GDP. But this assumes China's renminbi to remain the same and not to rise - an unlikely prospect. Also, in purchasing power parity, China's $5 trillion can easily balloon to $20 trillion (based on today's PPP calculations) in 2025, thus making China's real gross GDP to be slightly larger than America's by the end of the first quarter-century of the 21st century. How Thurow can claim that China will not matter economically from now to the end of this century is beyond me. It is absurd. To repeat, by 2025 China will have the third largest economy in the world in GDP based on exchange rates, and the largest economy in the world in GDP based on PPP. In 2025! Now, if this is "distant future," wait till you see China's share of world GDP continues to grow after 2025, even at a lowering rate. It is almost certain that China will take the lead from the US both in nominal GDP and in PPP before this century is out, if not in per capita income. Thurow argues that only the per capita income counts. I have trouble accepting this. If you're the biggest guy on the block, you start making the rules, even if you don't wear fancy clothes like the smaller guys. In the real world, absolute size matters as much as per capita income; otherwise Luxembourg instead of the US should be considered the superpower. Books written by Professor Gregory Chow of Princeton and Professor Angus Maddison of the OECD draw the same conclusion about China's future PPP figures. The US Department of Energy and Professor Richard Cooper of Harvard base their projections on nominal GDP. All four predicts China's growth rate to be twice that of the US for the next two decades. The first two decide that China's PPP will equal America's by 2020. The latter two decide that China's nominal GDP will be the world's THIRD largest by 2020 (not 2025), as long as components of the EU are counted as separate economies. (Otherwise the EU will be #1, America #2, Japan #3, China #4, Brazil/India #5, etc. in nominal GDP, and the EU will be #1, China #2, America #3, Japan #4, etc. etc. in PPP.) In each case, the implication is the same: China is going to be a BIG deal soon enough for most of us if not for Thurow. This is what Margaret Thatcher means when she writes that China is "undoubtedly on course to become an economic superpower" ("Statecraft"). This is what Paul Wolfowitz meant when he told the Washington Times that China is going to become a superpower in the next quarter-century to half-century, adding "and that's pretty fast by historical standards." This is what Jack Welch of GE means when he writes that China is going to wield enormous influence in this century, and warns managers "doing pie charts" to "leave half the pie open for the Chinese" ("Jack: Straight from the Gut"). And this is also what Lee Kuan Yew of Singapore, Ora Namir (former Israeli Minister of Labor), and Jeffrey Garten, Dean of Yale School of Management, mean when they proclaim today's China to be "the second most important country in the world." (Various news sources)
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