It is very nice to get a favorable view that indicates that the book we wrote is–at least in some respects–the book we thought we had written and tried to write. So Steve and I find ourselves especially grateful this weekend to the very-sharp Ed Luce:
Is robust American Growth a Thing of the Past?: “My hunch is that [Robert] Gordon is a little too adamant…:
…Perhaps we will come up with a cure to Alzheimer’s disease… androids will take… all the low-paying jobs. But even if he is right, there are things we can do…. The embittered US presidential primary battle offers a case study of what happens to politics when people’s economic hopes are dashed…. For an antidote to Gordon’s fatalism, turn to Concrete Economics.
This short book, by the economists Stephen Cohen and Bradford DeLong, is light on data and high on readability. What it shares with Gordon is the view that today’s economy is not serving most Americans well. Growth has slowed and inequality has risen.
Unlike Gordon, however, Cohen and DeLong believe that Americans have the power to do something about it. The key lies in better understanding their history.
If you ask Americans to identify the elixir of their country’s success, most would say something about freedom and entrepreneurship. Government would not feature. Their answer, in other words, would be ideological. A more accurate response, in the authors’ view, would be to draw on America’s creed of pragmatism. Franklin Roosevelt called it ‘bold, persistent experimentation’. Alexander Hamilton — perhaps the most modern of the founding fathers, and the only one who has a rap musical about him running on Broadway — developed the ‘American system’. Cohen and DeLong make a plea for Americans to abandon the ‘ideological incantations and abstract obfuscations’ that have held since the late 1970s in favour of ‘whatever works’ economics.
They make a persuasive case. From Hamilton’s infant industries to Abraham Lincoln’s Homestead Act, the federal government played a guiding role in the American success:
The invisible hand was repeatedly lifted at the elbow by the government and replaced in a new position where it could go on to perform its magic,
they write. If Lincoln had auctioned off land in the west to the highest bidders rather than parceled it out to families, the US would have developed along Latin American-style lines. Government was behind many of the technological leaps that Gordon writes about. Even in the ideological era, government has prodded the market to go where it decrees. But it has taken wrong turns. Huge chunks of the US economy are devoted to financial trading, healthcare claims processing, real estate transaction and other ‘busy but useless’ activity.
It is within America’s scope to reclaim its pragmatism, say the authors. Theirs is a lyrical manifesto. It is a million miles from Gordon’s techno-determinism and a different universe to Trump’s vision. It is also a corrective. Read Gordon and weep. Then perk yourself up with Concrete Economics. Some things are beyond our power to foresee. Others are within the realm of the possible.
Figure 5% of GDP wasted in excess health-care administration, 5% wasted in excess earnings paid to finance, another 15% wasted–from the perspective of America’s societal well-being–in incentivizing the rich and the super-rich in ways that are either ineffective or counterproductive, and another 5% subtracted from GDP by an ideological refusal to do win-win policies (cough infrastructure; cough aggregate demand; plus others) easily within our graph–and we have an America that could be 30% richer, not in the sense that measured real GDP would by 30% higher but in the sense that we would be delivering 30% more useful goods and services to those for whom it really counts. That would hold off Gordon’s stagnation for nearly a generation. And we could do that. Relatively easily. With our ideological blinders off. And with our political will on.