Concrete Economics: The Hamilton Approach to Economic Growth and Policy
BOOK BY STEPHEN S. COHEN AND J. BRADFORD DELONG
HARVARD BUSINESS REVIEW PRESS, 2016
240 PP.; $28.00
Concrete Economics: The Hamilton Approach to Economic Growth and Policy, by Stephen S. Cohen and J. Bradford DeLong, is a quick, easy, and provocative read for a someone with knowledge of history, economics, and, surprisingly, humanist philosophy. In an era in which Charles Koch is expanding his heavy funding for research to prove free markets and deregulation produce the fastest advancements in human wellbeing, it’s a welcome reminder of the US economic policy framework that created the middle class. Unfortunately, it also captures a fair snapshot of how the two-party system in the United States has, of late, completely failed the middle class.
The book tells two different stories. One is a brief history of US economic public policy. The other is how some other countries copied the best of that policy to advance their economy and middle class.
Alexander Hamilton, the first US Secretary of the Treasury, is at the center of the first story. The authors astutely point out how pivotal Hamilton’s work and economic theory were to setting the course of the US economy from the earliest days of our federation. His theory was expressed to Congress in 1791 in his Report on Manufacturers. The authors rightly state that despite the importance of this report in US economic history and theory, it “is not core curriculum, or even marginal curriculum in core American and British economics departments.”
In his report, Hamilton set forth the essence of policy necessary to defend nascent US industry against the economic power of the British Empire. In economic terms, it had the goal of protecting early US industry from being priced out of the market by British producers with deep pockets. In short, it called for tariffs, infrastructure spending, subsidies for promising industries, a central bank, and the establishment of a market for federal debt via assumption of states’ debt from the Revolutionary War.
Hamilton’s policies and the theory on which they were based resulted from a functional analysis of what the US economy needed. The authors call his approach “pragmatic.” They cite Teddy Roosevelt, Franklin Roosevelt, and Dwight Eisenhower as presidents whose administrations improved upon Hamilton’s basic structure for the economy.
Interestingly, the authors characterize Franklin Roosevelt’s approach in the New Deal as “pragmatic experimentalism.” That phrase is, for some philosophers, another name for humanist philosophy. To find it used in a book on core US economic policy reflects recent advances in understanding about the natural usefulness of the humanist approach. Roosevelt’s team analyzed the Great Depression, considered the needs of various economic actors in the economy, and set an appropriate course, not knowing for sure whether it would work. In short, that’s pragmatic experimentalism. One could also apply the phrase to the response by Barack Obama’s Treasury Department and the Federal Reserve Bank to the 2008 financial crisis (to the extent that Republicans in Congress did not hinder them).
Eisenhower kept the New Deal and high income tax rates, pushed the interstate highway system and housing subsidies, and expanded government funding of basic research that led to another technology boom post-World War II.
All told, Concrete Economics affirms the idea that the United States has always had an industrial policy, such as it has been. Sadly, the authors refrain from using the phrase “industrial
policy,” probably because it’s about as taboo a phrase in the nation as is “secular humanist.” The fact of the matter is that the best industrial policy is pragmatic experimentalism. The authors do highlight that noteworthy results of US government subsidies include interchangeable parts, mass production, transcontinental railroads, and large manufacturing corporations. These are key components of an economic approach labeled the “American System.”
It helps that we know that it worked. Of course, the authors acknowledge that other factors played a role in its success, including cheap and local natural resources and free but regulated markets. One might have been tempted to say the rest is history. Instead, ideology intervened.
Hamilton’s policies survived many partisan challenges throughout the mid-twentieth century. The authors cite Ronald Reagan as the president best serving the conservative opponents of the Hamiltonian approach. Those interests advocated free-market, deregulatory policies that the authors say have been discredited in every country that followed them, including Britain (their place of origin). “In that latest redesign, beginning in the 1980s, the new direction was—uniquely in American history—selected not pragmatically but ideologically, and presented not concretely, but abstractly.” The Goldwater-Reagan-Koch model of conservative economics dismantles protections for US jobs in order to maximize profit with super-inexpensive labor abroad. George W. Bush’s policies added cheap credit that led to the middle class’ debt overhang after the 2008 financial crisis.
The authors go easy on “New Democrat” Bill Clinton, however. They mention his signing the repeal of the Glass-Steagall Act that prevented bank speculation, helping to set up the interbank lending freeze that almost made the 2008 financial crisis a depression. But they don’t mention his North American Free Trade Agreement that opened the floodgates of tariff-eliminating trade agreements in the subsequent administrations of George W. Bush and Barack Obama.
Indeed, Clinton’s Democratic Leadership Council manifested a new consensus among the two parties for free-trade policies that have destroyed US manufacturing and the middle class.
In addition to ignoring the role of New Democrats, the authors fail to spell out how the free-market, conservative, and “religious” (as they call it) vision for the economy has done its damage. More briefly than other books on the topic, they discuss how the financial industry has captured the US political class. They point to the equally bloated healthcare industry, and to the dismantling of tariffs as a percentage of the cost of imports. But they don’t mention how this ideology has blocked infrastructure spending and mostly funneled subsidies to legacy industries whose managers and shareholders have donated profligately to its political high priests. Proponents of the “religious” vision have attacked the central bank—the Federal Reserve—generally and for rescuing the economy and millions of jobs after the 2008 crisis. Through decades of opposition to adequate taxation and demands for grossly excessive military spending, they ballooned national debt far beyond the scale Hamilton thought necessary (“a national debt, if it is not excessive, will be to us a national blessing”), giving the rich an additional stake in the success of the nation’s economy.
In contrast to recent US policy, Hamilton’s approach has successfully been used in Japan, Korea, Germany, and China. The authors elaborate on the Asian examples. They point to all successful applications in other countries as proof to each US citizen that our politicians have strayed from sustainable economic policy.
The authors are less than thorough, however, at pointing out what new US policy should look like. They do lament how the CEOs of major US corporations egregiously gave their technology away, especially to the Chinese government as a condition for access to its cheap labor. But they ignore many inherent downsides of growth-oriented economic policy in capitalism. They merely touch on the effects of automobile-centric infrastructure, wasteful industrial production methods, wanton energy consumption, consumerism, and other ills that have arisen from turning over a large part of industrial policy to the US military and the boards of directors of for-profit corporations. Indeed, they fail to mention the distortions caused by the military-industrial complex’s role in our economy.
Essentially, Cohen and DeLong argue for a return to pragmatic experimentalism in US economic policy. “Shift discussion of economic policy to the concrete, where it had recurrent successes…. Insist that proposed shifts be couched so as to be image-able, as in, ‘This is the kind of thing we will get.’” One can argue that the 2008 crisis has at least partly discredited the conservative and New Democrat free-market emphasis in the public debate. Humanists can help generate the next redesign of the US economy by clearly and loudly voicing what we want the results of the US economy to be.