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Concrete Economics: The Hamilton Approach to Economic Growth and Policy
Brilliantly written and argued, Concrete Economics shows exactly how the US government has shaped and directed the economy since the very inception of the country.
This book does not rehash the sturdy and well-known arguments that to thrive, an entrepreneurial economy needs a social and policy environment characterized by a broad range of freedoms. Nor does it buy into the myth of the absolutely free market.
Instead, Cohen and DeLong focus on the forgotten role played by the US government in initiating and enabling a redesign of the US economy. The government not only sets the ground rules for entrepreneurial activity but directs the surges of energy that mark a vibrant economy. It is as true for present-day Silicon Valley as it was for New England manufacturing at the dawn of the nineteenth century.
This is not an argument based on abstract truths, complex correlations, or arcane discoveries, but rather on the facts of how the US economy succeeded so brilliantly. And that provides a blueprint for how the government, established companies, and new ventures can partner to yet again successfully reshape the economy.
This book does not rehash the sturdy and well-known arguments that to thrive, an entrepreneurial economy needs a social and policy environment characterized by a broad range of freedoms. Nor does it buy into the myth of the absolutely free market.
Instead, Cohen and DeLong focus on the forgotten role played by the US government in initiating and enabling a redesign of the US economy. The government not only sets the ground rules for entrepreneurial activity but directs the surges of energy that mark a vibrant economy. It is as true for present-day Silicon Valley as it was for New England manufacturing at the dawn of the nineteenth century.
This is not an argument based on abstract truths, complex correlations, or arcane discoveries, but rather on the facts of how the US economy succeeded so brilliantly. And that provides a blueprint for how the government, established companies, and new ventures can partner to yet again successfully reshape the economy.
240 pages, Hardcover
First published May 12, 2015
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April 22, 2017
Concrete Economics: How Government Reshapes the Economy through Entrepreneurs, by Stephen S. Cohen and J. Bradford DeLong, is an impassioned treatise on removing ideology from economics in favour of practical and experimental progression that focuses on social well-being. The authors approach the subject by examining the United States economy through different phases; Hamiltonian, Depression era New Deal, Reaganomics and ultimately, the post-1980's deregulation drive. The authors also look at more authoritarian systems deemed the "East Asian Model" that focuses on centralized infant industry programs and export driven growth models. Finally, the authors get to the heart of the matter; they talk about pragmatic growth that is not ideologically driven, but driven by need and through innovation and experimentation.
The authors argue that the post-1980's deregulation drive in the US was the only economic blunder the United States has made through its history of innovative economic solutions. Tariff driven infant industry led to the growth of a strong US manufacturing sector, and protection for agricultural goods in order for the US to compete with more advanced economies in Europe. This gave way to export driven trade policies in the world war era's, followed by an embrace of free trade policies after WWII. The authors note that free trade was only possible after WWII because the US economy was so advanced as to out-compete any comers globally - closely mirroring the British and French free trade policies almost a century earlier.
This analysis is interesting, but is not really innovative itself, as many other works cover economic history and developmentalism in greater detail. The interesting part of this book is the authors argument for the removal of ideology from economic decision making. They argue that a number of issues have arisen in the US economic system. There is conflict in the US between over and under regulation, an issue that has given rise to a complex and extremely expensive medical system, complex bureaucratic organizations, a lack of understanding for the importance of governmental framework in economics, and over democratisation of the economy - think dozens of interest groups, conflicting NIMBYism and so on.
Cohen and DeLong have written an interesting book that is becoming very timely due to the rising populism much of the Western world is experiencing. Arguments are surfacing for increased tariff protections, the dismantling of free trade agreements, and an increasingly aggressive foreign policy. If these issues seem familiar, it's because they are: these are all solutions that have been tried and failed in the past few centuries. They are solutions to past problems relating to bringing a nation up to speed with global competitors. The West in modern times is at the cutting edge of economic policy and governmental framework - not perfect, sure, but still at the forefront. When individuals argue that the West needs to step backwards, then the results will be backwards indeed. Growth will not follow. Indeed, growth is slow because the West has not figured out which tools and policy initiatives to utilize and follow in order to strengthen their economies. The West requires innovation, not ideological hysteria, the authors argue.
This book was interesting for a number of reasons. Its (albeit light) historical analysis of US growth was well written. Its arguments for rational and logical economic policy, however, is the real gold nugget of the book. The authors cut out the ideological fluff that often accompanies political analysis to get straight to the point: the last round of economic policy was a failure, and new policy needs to be created to fix the damage done. This will be done not through regressive and ideologically driven populism, but through progressive regulation, government-market cooperation, and an embrace of global trends. This was a clear and concise book, and can be easily recommended for those looking to read an interesting treatise on economic policy and where it may be headed.
The authors argue that the post-1980's deregulation drive in the US was the only economic blunder the United States has made through its history of innovative economic solutions. Tariff driven infant industry led to the growth of a strong US manufacturing sector, and protection for agricultural goods in order for the US to compete with more advanced economies in Europe. This gave way to export driven trade policies in the world war era's, followed by an embrace of free trade policies after WWII. The authors note that free trade was only possible after WWII because the US economy was so advanced as to out-compete any comers globally - closely mirroring the British and French free trade policies almost a century earlier.
This analysis is interesting, but is not really innovative itself, as many other works cover economic history and developmentalism in greater detail. The interesting part of this book is the authors argument for the removal of ideology from economic decision making. They argue that a number of issues have arisen in the US economic system. There is conflict in the US between over and under regulation, an issue that has given rise to a complex and extremely expensive medical system, complex bureaucratic organizations, a lack of understanding for the importance of governmental framework in economics, and over democratisation of the economy - think dozens of interest groups, conflicting NIMBYism and so on.
Cohen and DeLong have written an interesting book that is becoming very timely due to the rising populism much of the Western world is experiencing. Arguments are surfacing for increased tariff protections, the dismantling of free trade agreements, and an increasingly aggressive foreign policy. If these issues seem familiar, it's because they are: these are all solutions that have been tried and failed in the past few centuries. They are solutions to past problems relating to bringing a nation up to speed with global competitors. The West in modern times is at the cutting edge of economic policy and governmental framework - not perfect, sure, but still at the forefront. When individuals argue that the West needs to step backwards, then the results will be backwards indeed. Growth will not follow. Indeed, growth is slow because the West has not figured out which tools and policy initiatives to utilize and follow in order to strengthen their economies. The West requires innovation, not ideological hysteria, the authors argue.
This book was interesting for a number of reasons. Its (albeit light) historical analysis of US growth was well written. Its arguments for rational and logical economic policy, however, is the real gold nugget of the book. The authors cut out the ideological fluff that often accompanies political analysis to get straight to the point: the last round of economic policy was a failure, and new policy needs to be created to fix the damage done. This will be done not through regressive and ideologically driven populism, but through progressive regulation, government-market cooperation, and an embrace of global trends. This was a clear and concise book, and can be easily recommended for those looking to read an interesting treatise on economic policy and where it may be headed.
November 15, 2019
This is a non-fic book that argues that for he last 40 years the USA moves the wrong way. The idea is that
since Hamilton America’s successful economic policy has been pragmatic, not ideological; concrete, not abstract. The deregulation of Reagan era in the 1980s stigmatized pragmatic political economy tradition as just another ideology, a counter-ideology to laissez-faire, and that destroyed manufacturing while boosting wasteful finance sector. While I disagree on a lot of points with the authors, I admit there are problems.
They start with Hamilton and his infant industry argument. Even while they agree that the goal of tariffs was fiscal and not protection, they again and again force the idea of protectionism, like Tariffs stayed high, and as steel ships radically reduced the costs of transatlantic freight, America raised them still further to effectively offset the impacts of greater efficiency. Later they have a similar approach about East Asian “tigers”, but fully forget import-substitution failures of Latin America or several examples in the XIX century when by clerical errors some items weren’t under tariff but still expanded quite notably, so internal demand was more important than tariffs.
They also state that US government always was big and engaged in social design on a big scale, e.g. selling off millions of acres in the Midwest under the Homestead Act, to prevent giant landholdings (and the extension of slavery) and ensure that only a family actually living on and farming the land could get it and hold it. And provided land for railroads as large as British Isles.
Even in the second half of XX century, under Eisenhower, government knew how to spend: it spent big-time, and taxed big-time too. It was big government and then some. Federal spending under Eisenhower was 18 percent of GDP—twice what it had been in peacetime even at the height of FDR’s New Deal. And state and local government spending raised total government spending to over 30 percent. Federal government direct employment was 5,354,000 in 1962. And that was in a nation of some 180 million people. In 2010, there were 4,443,000 government employees and the population was over 300 million.
Then they give a lot of anecdotes about the Pentagon, NASA, the Department of Energy’s National Labs, and the NSF which drove and supported the R&D that yielded the key inventions and launched initial applications that led to their exponential growth. Government enabled or opened up a new economic space, provided what is needed to launch, and entrepreneurs poured in to fill it and go on to create whole new products and industries and in the process reshape the economy. The authors ‘forget’ most of the economic problems of the 70s, which were caused among other things by the same big government.
In deregulation they first of all attack correct overfitted finance sector. By quoting Jack Bogle, the founder of Vanguard, the largest manager of index stock funds and now ETFs: The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99 percent of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.
since Hamilton America’s successful economic policy has been pragmatic, not ideological; concrete, not abstract. The deregulation of Reagan era in the 1980s stigmatized pragmatic political economy tradition as just another ideology, a counter-ideology to laissez-faire, and that destroyed manufacturing while boosting wasteful finance sector. While I disagree on a lot of points with the authors, I admit there are problems.
They start with Hamilton and his infant industry argument. Even while they agree that the goal of tariffs was fiscal and not protection, they again and again force the idea of protectionism, like Tariffs stayed high, and as steel ships radically reduced the costs of transatlantic freight, America raised them still further to effectively offset the impacts of greater efficiency. Later they have a similar approach about East Asian “tigers”, but fully forget import-substitution failures of Latin America or several examples in the XIX century when by clerical errors some items weren’t under tariff but still expanded quite notably, so internal demand was more important than tariffs.
They also state that US government always was big and engaged in social design on a big scale, e.g. selling off millions of acres in the Midwest under the Homestead Act, to prevent giant landholdings (and the extension of slavery) and ensure that only a family actually living on and farming the land could get it and hold it. And provided land for railroads as large as British Isles.
Even in the second half of XX century, under Eisenhower, government knew how to spend: it spent big-time, and taxed big-time too. It was big government and then some. Federal spending under Eisenhower was 18 percent of GDP—twice what it had been in peacetime even at the height of FDR’s New Deal. And state and local government spending raised total government spending to over 30 percent. Federal government direct employment was 5,354,000 in 1962. And that was in a nation of some 180 million people. In 2010, there were 4,443,000 government employees and the population was over 300 million.
Then they give a lot of anecdotes about the Pentagon, NASA, the Department of Energy’s National Labs, and the NSF which drove and supported the R&D that yielded the key inventions and launched initial applications that led to their exponential growth. Government enabled or opened up a new economic space, provided what is needed to launch, and entrepreneurs poured in to fill it and go on to create whole new products and industries and in the process reshape the economy. The authors ‘forget’ most of the economic problems of the 70s, which were caused among other things by the same big government.
In deregulation they first of all attack correct overfitted finance sector. By quoting Jack Bogle, the founder of Vanguard, the largest manager of index stock funds and now ETFs: The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99 percent of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.
April 1, 2020
In a very readable and direct style, Cohen and DeLong delineate the difference between a pragmatic ("concrete") style of economic policy making versus one that is driven by ideology. Relevant stuff for those wanting to be respectable voices in policy debates anywhere in the world.
It is, in a way, a more crisp analysis of the questions Gordon undertakes in the Rise and Fall of American Growth (which I am reading simultaneously; will take a week more to complete) albeit with a different focus. Rather than exhaustively investigating every piece of America's story on the innovation side, Cohen and DeLong talk about the role of the US government is fostering an environment where entrepreneurial energies could be unleashed. That role turns out to be a pretty active one - the authors call any country which follows such a prescription a "development state" - where the government decides a certain vision for their country and then proceeds to regulate or deregulate as the situation demands.
A recommended read.
It is, in a way, a more crisp analysis of the questions Gordon undertakes in the Rise and Fall of American Growth (which I am reading simultaneously; will take a week more to complete) albeit with a different focus. Rather than exhaustively investigating every piece of America's story on the innovation side, Cohen and DeLong talk about the role of the US government is fostering an environment where entrepreneurial energies could be unleashed. That role turns out to be a pretty active one - the authors call any country which follows such a prescription a "development state" - where the government decides a certain vision for their country and then proceeds to regulate or deregulate as the situation demands.
A recommended read.
November 11, 2016
The main thesis of the book is that the economic discourse in America needs to move away from the current fight between “liberals” and “conservatives” (the same guys who call themselves “progressives” and “job-creators,” or “pro-government” and “pro-free market,” respectively) and move on: let’s put aside ideological differences and let’s try to devise concrete solutions to the very real problems the economy faces.
To prove this need, the authors ascribe the ascendancy of America to its current position of power and prosperity to “pragmatic” economic policies that were followed by governments of all stripes, often in contrast with their proclaimed “values.” For example Hamilton set up a (highly protectionist, mercantilist) system, the authors say, and when Jefferson and Madison took over they may have disagreed with it, but they did not make any sharp turns, because they could see it worked.
Cohen has been a neo-mercantilist since the eighties, so perhaps it’s no big surprise that a parenthesis is opened here that takes up literally half the book: We are treated to a eulogy of industrial policy enforced through stiff tariffs and disrespect for foreign IP, which the authors hail as the very cornerstone of American success, differentiating the US from Canada, Australia and…. the Ukraine, which became granaries for the British empire and kept importing manufactured goods from England. Indeed, it worked so well for America, the authors go on to say, that Bismarck’s Germany, post-WWII Japan, the Asian Tigers and China have successfully cribbed it all the way to their own prosperity since.
At the same time, wherever it fits in the gaps, the history of the nation from 1776 to, dunno, 1980 is retold in the vein of “Zinn with positive spin,” which has to be Brad DeLong’s contribution here: yes, it was not so nice that the Indians were pushed out of the way, but this made room for homesteaders rather than the big landowners one finds in Argentina; yes, the railroads were granted land by the state in what was clearly a crony-capitalist setup, but look at the benefits to trade and agriculture and commerce; yes it wasn’t so nice that the workers who put together the railroads were sourced on the cheap from the poorer parts of Europe and deliberately set against each other, but that gave rise to the progressive movement etc. etc. And it’s pure Zinn with very little spin when the authors claim that Teddy Roosevelt’s trust-busting was nothing more than an attempt to protect the system. Little by little you thus make it to 1980.
Next, the authors make a further claim to bolster their recommendation: the current slowdown in prosperity is blamed on the fact that America has abandoned its “pragmatic” approach to policymaking and has espoused doctrinaire theories that are more “ideology” than “policy,” deregulating finance and allowing it to take over from manufacturing, leading to the crash of 2008 and today’s malaise.
I disagree with, dunno, 85% of what the book has to say, basically, and this is perhaps not the place to say why, but I’ll limit myself to observing that (i) Bismarck’s German model led to two wars that did not end up too well for Germany, that (ii) in the (grossly paraphrased) words of Zhou Enlai about the French Revolution, it might be a tad too early to celebrate the ascendancy of the Chinese, that (iii) it’s probably not early at all to say Japan is in deep dudu, and of course that (iv) China has already fired more people from manufacturing than the US ever did, so exactly how the US was going to keep those jobs is not clear to me at all.
The very tired point is also made that the government invented all the components in my Apple iPhone while it was fighting the cold war. Alright, then, let's go have another war with somebody, that won't be at all wasteful...
As for finance, I’d have expected these authors to point out that the one biggest externality, the pre-ordained default that is built into the “originate and distribute” model of lending has now taken its natural course, what with Fannie and Freddie back in the clutches of government, the only organization we can rely on to internalize externalities. The system worked, boys and girls.
Also, it’s disingenuous to say finance replaced manufacturing. Manufacturing was dead long before the ascent of finance, there’s scarcely any overlap between those two processes, let alone any causal connections. If anything (and as the authors say) to the extent that finance is about things you can touch and feel (and seize if the loan is not paid back) finance probably favors manufacturing over most alternative economic activities such as healthcare or education or any type of services.
Regardless, I must confess I truly enjoyed reading this dangerous little mini-book. Call me a crypto-commie, call me what you like. I was thoroughly entertained, basically. The message, besides, the one about how we need to think about the problems at hand, rather than our ideology, is impossible to disagree with.
Ah, and I almost forgot: I LOVED the SAT analogy that says micro is to macro what comedy is to tragedy. Brilliant!
To prove this need, the authors ascribe the ascendancy of America to its current position of power and prosperity to “pragmatic” economic policies that were followed by governments of all stripes, often in contrast with their proclaimed “values.” For example Hamilton set up a (highly protectionist, mercantilist) system, the authors say, and when Jefferson and Madison took over they may have disagreed with it, but they did not make any sharp turns, because they could see it worked.
Cohen has been a neo-mercantilist since the eighties, so perhaps it’s no big surprise that a parenthesis is opened here that takes up literally half the book: We are treated to a eulogy of industrial policy enforced through stiff tariffs and disrespect for foreign IP, which the authors hail as the very cornerstone of American success, differentiating the US from Canada, Australia and…. the Ukraine, which became granaries for the British empire and kept importing manufactured goods from England. Indeed, it worked so well for America, the authors go on to say, that Bismarck’s Germany, post-WWII Japan, the Asian Tigers and China have successfully cribbed it all the way to their own prosperity since.
At the same time, wherever it fits in the gaps, the history of the nation from 1776 to, dunno, 1980 is retold in the vein of “Zinn with positive spin,” which has to be Brad DeLong’s contribution here: yes, it was not so nice that the Indians were pushed out of the way, but this made room for homesteaders rather than the big landowners one finds in Argentina; yes, the railroads were granted land by the state in what was clearly a crony-capitalist setup, but look at the benefits to trade and agriculture and commerce; yes it wasn’t so nice that the workers who put together the railroads were sourced on the cheap from the poorer parts of Europe and deliberately set against each other, but that gave rise to the progressive movement etc. etc. And it’s pure Zinn with very little spin when the authors claim that Teddy Roosevelt’s trust-busting was nothing more than an attempt to protect the system. Little by little you thus make it to 1980.
Next, the authors make a further claim to bolster their recommendation: the current slowdown in prosperity is blamed on the fact that America has abandoned its “pragmatic” approach to policymaking and has espoused doctrinaire theories that are more “ideology” than “policy,” deregulating finance and allowing it to take over from manufacturing, leading to the crash of 2008 and today’s malaise.
I disagree with, dunno, 85% of what the book has to say, basically, and this is perhaps not the place to say why, but I’ll limit myself to observing that (i) Bismarck’s German model led to two wars that did not end up too well for Germany, that (ii) in the (grossly paraphrased) words of Zhou Enlai about the French Revolution, it might be a tad too early to celebrate the ascendancy of the Chinese, that (iii) it’s probably not early at all to say Japan is in deep dudu, and of course that (iv) China has already fired more people from manufacturing than the US ever did, so exactly how the US was going to keep those jobs is not clear to me at all.
The very tired point is also made that the government invented all the components in my Apple iPhone while it was fighting the cold war. Alright, then, let's go have another war with somebody, that won't be at all wasteful...
As for finance, I’d have expected these authors to point out that the one biggest externality, the pre-ordained default that is built into the “originate and distribute” model of lending has now taken its natural course, what with Fannie and Freddie back in the clutches of government, the only organization we can rely on to internalize externalities. The system worked, boys and girls.
Also, it’s disingenuous to say finance replaced manufacturing. Manufacturing was dead long before the ascent of finance, there’s scarcely any overlap between those two processes, let alone any causal connections. If anything (and as the authors say) to the extent that finance is about things you can touch and feel (and seize if the loan is not paid back) finance probably favors manufacturing over most alternative economic activities such as healthcare or education or any type of services.
Regardless, I must confess I truly enjoyed reading this dangerous little mini-book. Call me a crypto-commie, call me what you like. I was thoroughly entertained, basically. The message, besides, the one about how we need to think about the problems at hand, rather than our ideology, is impossible to disagree with.
Ah, and I almost forgot: I LOVED the SAT analogy that says micro is to macro what comedy is to tragedy. Brilliant!
December 12, 2020
Cohen and DeLong set out to how did the United States become the economic power that it is and how that power slowly, but surely, slipping away. They make a very good case that the current economic direction is ideological and based on entrenched interest which is not in the long-term interest of the country and important for citizens to know.
April 22, 2023
Lovely work -- this was recommended by Noah Smith, an American Economist.
He recommended me this work, when I asked him, , "What went wrong with American Economy?"
In Short, after 1980s, Economic Policy is ideological, rather than concrete, pragmatic.
Excerpts from this Work
There is a folk wisdom about American history that says America has always been a small-government, laissez-faire country, deeply distrustful of government interference in the economy.
However, this is wrong, as James Madison argued for small government in the 1790s, but it was rejected by the majority. Madison did not complain when Thomas Jefferson wielded federal government powers expansively for enterprises like the Louisiana Purchase or the embargo on trade with Europe. The federal government's role in economic development has always been large, with troops needed for Indian removal and canals built for crop transportation.
As the eighteenth century gave way to the nineteenth, the government's role in economic development only grew. The British mercantile system required all goods passing through Britain and on British transports. The system aimed to provide Britain with what it wanted cheaply and what it could resell with profit. The northern colonies sold furs and timber to Britain and became a captive market for Britain's goods.
Adam Smith's Inquiry into the Nature and Causes of the Wealth of Nations criticized the mercantile system. Continued British rule would have led to the US importing capital- and technology-intensive manufactures from Britain and exporting natural resources.
Alexander Hamilton had the most significant individual impact on the shape of the American economy and its growth. Alexander Hamilton reshaped the economy of the United States and is the architect of its economic success. Hamilton's theory of economic development, as outlined in his Report on Manufacturers, played a crucial role in the rapid industrialization of Germany, Japan, Korea, and China.
Before Hamilton, the US economy followed the Jeffersonian model imposed by Britain's mercantilist colonial policy. Hamilton pushed for a pro-industrialization, high-tariff, pro-finance, big-infrastructure political economy, which set in motion a self-sustaining process and was good for the country as a whole.
The US could have ended up like other economies of temperate European settlement, such as Australia, Argentina, Canada, and Ukraine, which became granaries and ranches for industrial Europe, but Hamilton's policies prevented that.
Industrialization and the development of productive export agricultural sectors led to prosperity in the late 19th century, but this was a heavy and undiversified bet that led to loss of relative ground when commodity price trends turned against them.
Thomas Jefferson believed in the virtue of the countryside and saw the British Empire as undergoing a process similar to Rome's historical decline, leading him to advocate for cutting America loose from Imperial Britain. Alexander Hamilton believed that liberty could spring from the city as well as the countryside and that urban commercial prosperity was essential for a good and free society, and that a rural society lacking manufacturing capabilities could not defend itself against empire building by foreign powers.
Andrew Jackson clung to the rural American model and echoed Jefferson's egalitarian stance, but a Jefferson-Jackson United States would have been rural, Anglo-Saxon, Southern and Border-Southern, and not a technological leader but rather a technological follower.
Jackson is prominently represented in the US through Lafayette Square and the twenty-dollar bill, while Hamilton has a single statue and his portrait on the ten-dollar bill is being considered for removal. Jackson's Democratic Party policies were more Hamiltonian than Jeffersonian, with the exception of dismembering the Second Bank of the United States.
Hamilton's economic system had four drivers that reinforced each other economically and politically: high tariffs, high spending on infrastructure, assumption of state debts by the federal government, and a central bank. The system aimed to promote industry and shift the comparative advantage of the US economy towards manufacturing.
The high tariff on manufactured imports served as the major source of federal government revenues and also supported infrastructure development, critical political support, and subsidies for nascent manufacturing firms. Hamilton's system was constructed of four drivers that reinforced one another, not just economically but politically: high tariffs, high spending on infrastructure, assumption of states' debts by the federal government, and a central bank.
The Hamiltonian system reshaped the economy to promote industry, with the aim of shifting that comparative advantage. The tariff on manufactured imports was the principal instrument for this and provided the incentive to invest in the development of manufacturing technologies and their build-out.
The tariff was also the major source of federal government revenues, supported an extensive program of infrastructure development, and added critical political support of western farmers to the northern coastal commercial and labor interests. The tariff permitted the federal government to credibly assume the states' debts incurred to fund the Revolutionary War and strengthened the central government, paying off rich financiers who bought the state debts for pennies of the dollar.
The creation of a federal government debt constituted the basis of a new and vigorous financial market and gave the rich interest in the survival and success of that government. The Bank of the United States sat at the center of the financial system and imparted solidity, sobriety, and control, taming the wildcat banks and their wildcat currencies.
As the Hamiltonian system developed, tariffs rose to about 35 percent of the values of manufactured imports by 1816 and kept climbing. It was a formidable exercise in manufacturing protectionism, as well as a short-run sacrifice of consumer to producer well-being and static wealth to dynamic technology-based growth. The tariff stayed up for more than a century, even when steamships and railroads massively lowered shipping costs, to protect America's infant industries.
It was only after World War II when the United States assumed its dominant global position that lowering tariffs and moving toward ever-freer trade and greater economic integration of the free world became American policy.
A tariff to protect infant industries while filling the federal till can just as well be a national burden as a national blessing. For the Hamiltonian bet to succeed, the opportunities for technological developments that would prove American industry competitive had to be there, and those opportunities had to somehow be seized.
The US has a history of using federal funding to develop high-tech industries, leading to the resource-wasting, innovation-forcing approach to high-productivity manufacturing called the American System. America did not respect foreigners' intellectual property, including Charles Dickens, who was unable to collect royalties on US sales of his novels.
America had access to cheap raw materials like wood, iron ore, and coal, which allowed for exploration of various lines of industrial technological development that economized on labor alone.
Britain's first-generation industrial technologies were developed for late-eighteenth-century British factor proportions and factor prices due to the country's unique cheap coal and high real wages.
By the mid-nineteenth century, third-generation versions of British-developed spinning, weaving, power, and iron technologies were highly profitable to deploy in various parts of the world.
Fifth-generation water transport technologies developed by the end of the nineteenth century were profitable to deploy anywhere with market and political support.
American technologies developed as a result of the Hamiltonian system were more profitable than British technologies in the mid-nineteenth century. Even though Britain had been the home of the Industrial Revolution for 150 years, the principal locus of innovation had already moved to America.
The Hamiltonian project was contrary to Ricardo’s canons of comparative advantage and Smith’s free markets, but it brought technological and organizational innovations of enormous value.
American industrial technologies were not just the result of different factor proportions and costs, but a qualitative change like the British Industrial Revolution.
The Industrial Revolution is a process of continuous exploration and innovation, rapid spread, and further development of ideas that turn out to be most productive and useful.
The success of laissez-faire policies is not always the best approach for promoting economic growth.
The East Asian model of state-led development has proven to be successful for catch-up development.
East Asian governments provide cheap capital, foreign technology, and protection against foreign competition to selected industries.
The East Asian model promotes competition and international markets, but controls imports and exchange rates. Nontariff barriers have played a critical role in the success of the East Asian model.
The trade patterns of the East Asian states are different from those of liberal economies and have a particular impact on the rest of the world, especially the United States. The ideological turn in American economic policy in the 1980s was a mistake that has had negative outcomes.
The belief that cutting back government regulation and interference with the marketplace would lead to economic growth and innovation was flawed. The real economy was not reshaped in a concrete way and industries with positive spillovers were not prioritized.
The current shape of the American economy is unattractive, with industries like high-finance, real estate, and healthcare claims processing replacing manufacturing.
Question:
So, I wonder how is Government intervention different from Nehru-Mahalanobis's Planned Economy?
He recommended me this work, when I asked him, , "What went wrong with American Economy?"
In Short, after 1980s, Economic Policy is ideological, rather than concrete, pragmatic.
Excerpts from this Work
There is a folk wisdom about American history that says America has always been a small-government, laissez-faire country, deeply distrustful of government interference in the economy.
However, this is wrong, as James Madison argued for small government in the 1790s, but it was rejected by the majority. Madison did not complain when Thomas Jefferson wielded federal government powers expansively for enterprises like the Louisiana Purchase or the embargo on trade with Europe. The federal government's role in economic development has always been large, with troops needed for Indian removal and canals built for crop transportation.
As the eighteenth century gave way to the nineteenth, the government's role in economic development only grew. The British mercantile system required all goods passing through Britain and on British transports. The system aimed to provide Britain with what it wanted cheaply and what it could resell with profit. The northern colonies sold furs and timber to Britain and became a captive market for Britain's goods.
Adam Smith's Inquiry into the Nature and Causes of the Wealth of Nations criticized the mercantile system. Continued British rule would have led to the US importing capital- and technology-intensive manufactures from Britain and exporting natural resources.
Alexander Hamilton had the most significant individual impact on the shape of the American economy and its growth. Alexander Hamilton reshaped the economy of the United States and is the architect of its economic success. Hamilton's theory of economic development, as outlined in his Report on Manufacturers, played a crucial role in the rapid industrialization of Germany, Japan, Korea, and China.
Before Hamilton, the US economy followed the Jeffersonian model imposed by Britain's mercantilist colonial policy. Hamilton pushed for a pro-industrialization, high-tariff, pro-finance, big-infrastructure political economy, which set in motion a self-sustaining process and was good for the country as a whole.
The US could have ended up like other economies of temperate European settlement, such as Australia, Argentina, Canada, and Ukraine, which became granaries and ranches for industrial Europe, but Hamilton's policies prevented that.
Industrialization and the development of productive export agricultural sectors led to prosperity in the late 19th century, but this was a heavy and undiversified bet that led to loss of relative ground when commodity price trends turned against them.
Thomas Jefferson believed in the virtue of the countryside and saw the British Empire as undergoing a process similar to Rome's historical decline, leading him to advocate for cutting America loose from Imperial Britain. Alexander Hamilton believed that liberty could spring from the city as well as the countryside and that urban commercial prosperity was essential for a good and free society, and that a rural society lacking manufacturing capabilities could not defend itself against empire building by foreign powers.
Andrew Jackson clung to the rural American model and echoed Jefferson's egalitarian stance, but a Jefferson-Jackson United States would have been rural, Anglo-Saxon, Southern and Border-Southern, and not a technological leader but rather a technological follower.
Jackson is prominently represented in the US through Lafayette Square and the twenty-dollar bill, while Hamilton has a single statue and his portrait on the ten-dollar bill is being considered for removal. Jackson's Democratic Party policies were more Hamiltonian than Jeffersonian, with the exception of dismembering the Second Bank of the United States.
Hamilton's economic system had four drivers that reinforced each other economically and politically: high tariffs, high spending on infrastructure, assumption of state debts by the federal government, and a central bank. The system aimed to promote industry and shift the comparative advantage of the US economy towards manufacturing.
The high tariff on manufactured imports served as the major source of federal government revenues and also supported infrastructure development, critical political support, and subsidies for nascent manufacturing firms. Hamilton's system was constructed of four drivers that reinforced one another, not just economically but politically: high tariffs, high spending on infrastructure, assumption of states' debts by the federal government, and a central bank.
The Hamiltonian system reshaped the economy to promote industry, with the aim of shifting that comparative advantage. The tariff on manufactured imports was the principal instrument for this and provided the incentive to invest in the development of manufacturing technologies and their build-out.
The tariff was also the major source of federal government revenues, supported an extensive program of infrastructure development, and added critical political support of western farmers to the northern coastal commercial and labor interests. The tariff permitted the federal government to credibly assume the states' debts incurred to fund the Revolutionary War and strengthened the central government, paying off rich financiers who bought the state debts for pennies of the dollar.
The creation of a federal government debt constituted the basis of a new and vigorous financial market and gave the rich interest in the survival and success of that government. The Bank of the United States sat at the center of the financial system and imparted solidity, sobriety, and control, taming the wildcat banks and their wildcat currencies.
As the Hamiltonian system developed, tariffs rose to about 35 percent of the values of manufactured imports by 1816 and kept climbing. It was a formidable exercise in manufacturing protectionism, as well as a short-run sacrifice of consumer to producer well-being and static wealth to dynamic technology-based growth. The tariff stayed up for more than a century, even when steamships and railroads massively lowered shipping costs, to protect America's infant industries.
It was only after World War II when the United States assumed its dominant global position that lowering tariffs and moving toward ever-freer trade and greater economic integration of the free world became American policy.
A tariff to protect infant industries while filling the federal till can just as well be a national burden as a national blessing. For the Hamiltonian bet to succeed, the opportunities for technological developments that would prove American industry competitive had to be there, and those opportunities had to somehow be seized.
The US has a history of using federal funding to develop high-tech industries, leading to the resource-wasting, innovation-forcing approach to high-productivity manufacturing called the American System. America did not respect foreigners' intellectual property, including Charles Dickens, who was unable to collect royalties on US sales of his novels.
America had access to cheap raw materials like wood, iron ore, and coal, which allowed for exploration of various lines of industrial technological development that economized on labor alone.
Britain's first-generation industrial technologies were developed for late-eighteenth-century British factor proportions and factor prices due to the country's unique cheap coal and high real wages.
By the mid-nineteenth century, third-generation versions of British-developed spinning, weaving, power, and iron technologies were highly profitable to deploy in various parts of the world.
Fifth-generation water transport technologies developed by the end of the nineteenth century were profitable to deploy anywhere with market and political support.
American technologies developed as a result of the Hamiltonian system were more profitable than British technologies in the mid-nineteenth century. Even though Britain had been the home of the Industrial Revolution for 150 years, the principal locus of innovation had already moved to America.
The Hamiltonian project was contrary to Ricardo’s canons of comparative advantage and Smith’s free markets, but it brought technological and organizational innovations of enormous value.
American industrial technologies were not just the result of different factor proportions and costs, but a qualitative change like the British Industrial Revolution.
The Industrial Revolution is a process of continuous exploration and innovation, rapid spread, and further development of ideas that turn out to be most productive and useful.
The success of laissez-faire policies is not always the best approach for promoting economic growth.
The East Asian model of state-led development has proven to be successful for catch-up development.
East Asian governments provide cheap capital, foreign technology, and protection against foreign competition to selected industries.
The East Asian model promotes competition and international markets, but controls imports and exchange rates. Nontariff barriers have played a critical role in the success of the East Asian model.
The trade patterns of the East Asian states are different from those of liberal economies and have a particular impact on the rest of the world, especially the United States. The ideological turn in American economic policy in the 1980s was a mistake that has had negative outcomes.
The belief that cutting back government regulation and interference with the marketplace would lead to economic growth and innovation was flawed. The real economy was not reshaped in a concrete way and industries with positive spillovers were not prioritized.
The current shape of the American economy is unattractive, with industries like high-finance, real estate, and healthcare claims processing replacing manufacturing.
Question:
So, I wonder how is Government intervention different from Nehru-Mahalanobis's Planned Economy?
June 27, 2016
Brad DeLong easily has the most interesting mind in modern economics. Before this book, I was unfamiliar with his co-author. But when I saw that DeLong was writing a book, no matter what the subject, I was ready to pounce on it. Thankfully the people at the Harvard Business School Press gave me and advance review copy, and then I was inconsiderate enough to not read review it in any form until now.
What Concrete Economics calls for is an economic plan on pragmatism. The realization is that both parties may have strayed too far into an ideology that doesn’t work (neoliberalism in the vein of Thatcher and Reagan and continued to this day) in the light of the crisis that was almost ten years ago now. What we need, according to the authors, is to look at the administration of Hamilton’s Treasury Department on doing what is needed to help the country grow and prosper. It reminds me of the dictum attributed to FDR in the Depression – Try something, and if that doesn’t work, try something else.
The prescription is timely, since growing inequality and stagnating wages at the middle of the distribution have given rise to the voices of populism and xenophobia. These current developments are scary to people who have tried to make the economic system work for everyone, and though I am to the left of the authors politically, I would much prefer a politics and economics of pragmatism much more than one based on fear of the other. Thankfully and hopefully, DeLong is a creature on the edge of the establishment, so maybe his voice will be heard in the next administration. (As long as the vox populi doesn’t make some sort of fatal mistake.)
What Concrete Economics calls for is an economic plan on pragmatism. The realization is that both parties may have strayed too far into an ideology that doesn’t work (neoliberalism in the vein of Thatcher and Reagan and continued to this day) in the light of the crisis that was almost ten years ago now. What we need, according to the authors, is to look at the administration of Hamilton’s Treasury Department on doing what is needed to help the country grow and prosper. It reminds me of the dictum attributed to FDR in the Depression – Try something, and if that doesn’t work, try something else.
The prescription is timely, since growing inequality and stagnating wages at the middle of the distribution have given rise to the voices of populism and xenophobia. These current developments are scary to people who have tried to make the economic system work for everyone, and though I am to the left of the authors politically, I would much prefer a politics and economics of pragmatism much more than one based on fear of the other. Thankfully and hopefully, DeLong is a creature on the edge of the establishment, so maybe his voice will be heard in the next administration. (As long as the vox populi doesn’t make some sort of fatal mistake.)
May 10, 2018
History and not ideology may well hold the key to economic growth. This book examines how our economy has actually grown and the role government has played in redesigning and reinvigorating it throughout our history. It challenges conservative orthodoxy by outlining the role that pragmatic (as opposed to ideologic) government policy can stimulate economic growth and even goes so far as to examine how the Asian powerhouses of Japan, South Korea, and China emulated many of our policies (from 1800-1945) to achieve rapid industrialization. A good quick read and a solid reminder, for those of us who tend to agree with Milton Friedman's economic philosophy, that free markets are imperfect..although not as imperfect as a full government-planned economy.
March 5, 2016
An intriguing book that discusses the history of how pragmatism not ideology drove the interaction between private macroeconomic players and the US government since the days of Hamilton. It's a historical view with an econometric tilt that's easy to read and informative. Both authors give a very good case on looking to pragmatism above all else in discussing macroeconomic goals and give a damning case against ideologically driven change since the late 70s early 80s, especially in finance reform. Very recommended.
July 2, 2021
Fitting Companion to the Hamilton Hit Musical and Biography – Read About the Economic/Policy Implications - Concrete Economics is a concise readable description of an effective approach to economic growth, explanation of our current malaise and prescription for recovery that goes back to Hamilton – another reason to build on the interest generated by current hit musical and biography it is based on, their popularity, appeal and relevance (i.e. the broad importance and particular pertinence of Hamilton’s work as a Federalist).
The Introduction outlines the book and the its main argument. That is historically the US has followed a deliberate approach initiated by Hamilton where the federal government has provided a focus and fostered entrepreneurial activity at different times in its history. However, during the last 30-35 years, we have not had such attention. Instead, there was to be shift to more value-added activities with less deliberate, conscious, understood changes, more ideological than pragmatic and the rise in FIRE, i.e. finance, insurance, real estate (see my review of Rana Faroohar’s “Makers and Takers” for additional details). On page 22, Cohen and DeLong comment on how “Earlier re-designs in the US economy were presented and designed by government as specific, concrete, and ‘image-able.’”
More specifically, successive chapters detail the ways Alexander Hamilton Designs (or designed) America, Additional Redesigns: From Lincoln to FDR, The Long Age of Eisenhower, The East Asian Model and The Hypertrophy of Finance. Among my favorite parts come in the authors’ discussion of The East Asian Model and the appearance of Tragedy and Comedy on the Economics Stage (pg. 127). While comedy is easier to teach with its core truths of pride, greed, imbalances of passion and control, tragedy is about context—circumstance, particularity, surprise, and inversion. The Asian model has had elements of both comedy and tragedy with the saga continuing as those countries have had more focus during the drift in recent years by the US (and Europe as shown by the BREXIT vote this past summer).
In the conclusion, Cohen and DeLong reiterate “Successful US economic policy has been pragmatic, non-ideological. It has been concrete, not abstract. It has been image-able, not ex-ante unknowable and non-describable. And it was not unspeakable” (pg. 189). They go on to summarize the need to return to such a Hamiltonian economic approach once again.
The Introduction outlines the book and the its main argument. That is historically the US has followed a deliberate approach initiated by Hamilton where the federal government has provided a focus and fostered entrepreneurial activity at different times in its history. However, during the last 30-35 years, we have not had such attention. Instead, there was to be shift to more value-added activities with less deliberate, conscious, understood changes, more ideological than pragmatic and the rise in FIRE, i.e. finance, insurance, real estate (see my review of Rana Faroohar’s “Makers and Takers” for additional details). On page 22, Cohen and DeLong comment on how “Earlier re-designs in the US economy were presented and designed by government as specific, concrete, and ‘image-able.’”
More specifically, successive chapters detail the ways Alexander Hamilton Designs (or designed) America, Additional Redesigns: From Lincoln to FDR, The Long Age of Eisenhower, The East Asian Model and The Hypertrophy of Finance. Among my favorite parts come in the authors’ discussion of The East Asian Model and the appearance of Tragedy and Comedy on the Economics Stage (pg. 127). While comedy is easier to teach with its core truths of pride, greed, imbalances of passion and control, tragedy is about context—circumstance, particularity, surprise, and inversion. The Asian model has had elements of both comedy and tragedy with the saga continuing as those countries have had more focus during the drift in recent years by the US (and Europe as shown by the BREXIT vote this past summer).
In the conclusion, Cohen and DeLong reiterate “Successful US economic policy has been pragmatic, non-ideological. It has been concrete, not abstract. It has been image-able, not ex-ante unknowable and non-describable. And it was not unspeakable” (pg. 189). They go on to summarize the need to return to such a Hamiltonian economic approach once again.
December 13, 2021
Great review of the US economic history and Hamiltonian economics. Chapter 1-3 are gorgeous. They concisely explain the history of the US 'developmental state'. There are two things that are problematic. First, in Chapter 3 the authors chose to talk about the East Asian model where it focuses on the experience of Japan and China. I believe that to include China is not such a good decision. The economic development of China requires more elaboration, and there are many things that China did differently from Japan. While Japan developed amidst Cold War and under the wings of the US, China did not. China did even develop itself amidst neoliberal tides. I believe that if the authors shall have more things to discuss China. A separate book on China will be appreciated. In my view, the better choice for this chapter is perhaps to include the postwar European development, such as Germany.
Another issue I have with this book is about the main argument, that the US's economic policy had been successful because it was "pragmatic, not ideological. It has been concrete, not abstract." (p. 189). The authors, therefore, ask us to "shift discussion of economic policy to the concrete, where it had recurrent success." (p. 190). I am still not convinced by this main argument that the answer is to just don't be ideological and instead be pragmatic. That sounds too easy and trivial. There are myriad policymakers in the world that claim they are non-ideological, but in the end, they could not provide good policies.
Another issue I have with this book is about the main argument, that the US's economic policy had been successful because it was "pragmatic, not ideological. It has been concrete, not abstract." (p. 189). The authors, therefore, ask us to "shift discussion of economic policy to the concrete, where it had recurrent success." (p. 190). I am still not convinced by this main argument that the answer is to just don't be ideological and instead be pragmatic. That sounds too easy and trivial. There are myriad policymakers in the world that claim they are non-ideological, but in the end, they could not provide good policies.
January 5, 2016
Prof. Brad Delong’s blogs, either “bradford-delong.com” or over at “ Equitable Growth” , are definitely two of the most influential economics blogs in the blogoshpere, and I read both of them daily. More than often, however, I found my economics ideology differ vastly with that of Delong’s. What keeps me reading his blog daily, is Delong’s often detailed explanations on economics, and beyond doubts, they are absolutely fascinating for economics learners of all levels.
In the latest book “Concrete Economics: The Hamilton Approach to Economic Growth and Policy” (to be published on 9th Feb 2016) , Prof.Delong, together with Prof. Stephen Cohen, successfully challenged my very own economics views once again.
The authors argue that the Financial Crisis, and the declining trend of the U.S. economy predated the crisis, was largely due to the fact that U.S. government and economics academia focused too much on ideological arguments for and against certain economic policies. Academics and Policymakers no longer guide the economy with “concrete thinking and plannings”.
Without directly pointing the finger, readers can easily understand that the authors are blaming the Free-market-ism and the Chicago School, for guiding the economy only with vague principles, rather than visions and evidences.
As a supporter of Friedman’s vision of free market, I find this book still fascinating. The authors argued that Alexander Hamilton, Founding Father of the United States, chief staff aide to General George Washington, and most importantly the first Secretary of the Treasury of the United States; as one of the examples of how concrete and visionary economic plannings could indeed be a better guiding principle for building a wealthy nation.
The Authors emphasized it is the vision of economic leaders, together appropriate regulations and the understanding of the economies’ need , rather than pure ideologies , should be the key to economic developments.
But one thing we have to be clear, the authors are not arguing for communism, or any other form of dictatorships. Rather, the authors are arguing for no guiding economic ideology at all.
This is why I enjoyed reading “Concrete Economics”, even the author’s advocacy position on using excessive tariff to protect local industries development is rather too strong for my own taste.
This is a book which Free Market Supporters should read, as this book let readers understand what concrete economic planning achieved. Also Delong and Cohen’s arguments provided Free-marketer a foundation for more thorough thinking on why and when free market methods work best, and why mere Free Market ideology alone can’t result successful economic developments.
The Concrete Economics based on this very premise:
“Yes, there was an ‘invisible hand’ and enormous entrepreneurial innovation and energy. But The Invisible hand was repeated;y lifted at the elbow by government and re-placed in a new position from where it could go on perform its magic.”
The authors argue, it was Hamilton’s tariff protection for infant manufacturing industry against more competitive English producers, e.g. 25 percent in 1816, that help United States industries a breathing space to develop. And it was U.S. government’s initiative to build transcontinental railroads that opened vast opportunities for profitable farming and settlement, and the developments of steel industries.
It was also Franklin Roosevelt’s pragmatic experimentalism, putting out the New Deal in the climax of the Great Depression, that redesigned the U.S. economy and opned economic space for future growth. Though it was originally an economic stimulus, the New Deal found its way into every corner of U.S. economy, from farm, to bridge, to stock exchanges and bank, to social insurances, and turn itself into the foundation of post war U.S. economy. As the authors put it, ” Through the New Deal was not it self ideological but rather ultimate in pragmatic policy experimentation, it became the definition of ideology that was post-World War II American liberalism: The regulation of finance, social safety net, mortgage insurance, high marginal tax rate, and big active government. It became the model of what government could do and should do.”
Most interesting argument in the book, is the authors analysis on how East Asian Economies, i.e. Japan, Korea and China etc, took the Hamilton-style economic planning, using deliberately low exchange rates, tariff and subsidies to protect local industries from international competitions. At the same time, adopters of this “East Asian Model” take advantage of the globalization, selling their manufactures to all around the world to help local industries grow even faster.
And what did U.S. do amid the rise of the East Asian model? U.S. inclined to growth “high-value added industries”, like Financial Services. By embracing deregulation of finance industry, finance grow tremendously as its share in U.S. economy grew rapidly. The result is excessive lending that eventually led to The Great Recession of 2008, and the rise of East Asian economic power. As the authors read it, U.S. just gave away part of its economic supremacy to the East Asia, for nothing in return.
Is this the correct analysis of the whole post 1980s world economic situation? Arguable. But the comparison between Hamilton style development strategy and the post-1980s U.S. economic development is striking. This makes me wonder, why U.S. had chosen the path it took…
In the latest book “Concrete Economics: The Hamilton Approach to Economic Growth and Policy” (to be published on 9th Feb 2016) , Prof.Delong, together with Prof. Stephen Cohen, successfully challenged my very own economics views once again.
The authors argue that the Financial Crisis, and the declining trend of the U.S. economy predated the crisis, was largely due to the fact that U.S. government and economics academia focused too much on ideological arguments for and against certain economic policies. Academics and Policymakers no longer guide the economy with “concrete thinking and plannings”.
Without directly pointing the finger, readers can easily understand that the authors are blaming the Free-market-ism and the Chicago School, for guiding the economy only with vague principles, rather than visions and evidences.
As a supporter of Friedman’s vision of free market, I find this book still fascinating. The authors argued that Alexander Hamilton, Founding Father of the United States, chief staff aide to General George Washington, and most importantly the first Secretary of the Treasury of the United States; as one of the examples of how concrete and visionary economic plannings could indeed be a better guiding principle for building a wealthy nation.
The Authors emphasized it is the vision of economic leaders, together appropriate regulations and the understanding of the economies’ need , rather than pure ideologies , should be the key to economic developments.
But one thing we have to be clear, the authors are not arguing for communism, or any other form of dictatorships. Rather, the authors are arguing for no guiding economic ideology at all.
This is why I enjoyed reading “Concrete Economics”, even the author’s advocacy position on using excessive tariff to protect local industries development is rather too strong for my own taste.
This is a book which Free Market Supporters should read, as this book let readers understand what concrete economic planning achieved. Also Delong and Cohen’s arguments provided Free-marketer a foundation for more thorough thinking on why and when free market methods work best, and why mere Free Market ideology alone can’t result successful economic developments.
The Concrete Economics based on this very premise:
“Yes, there was an ‘invisible hand’ and enormous entrepreneurial innovation and energy. But The Invisible hand was repeated;y lifted at the elbow by government and re-placed in a new position from where it could go on perform its magic.”
The authors argue, it was Hamilton’s tariff protection for infant manufacturing industry against more competitive English producers, e.g. 25 percent in 1816, that help United States industries a breathing space to develop. And it was U.S. government’s initiative to build transcontinental railroads that opened vast opportunities for profitable farming and settlement, and the developments of steel industries.
It was also Franklin Roosevelt’s pragmatic experimentalism, putting out the New Deal in the climax of the Great Depression, that redesigned the U.S. economy and opned economic space for future growth. Though it was originally an economic stimulus, the New Deal found its way into every corner of U.S. economy, from farm, to bridge, to stock exchanges and bank, to social insurances, and turn itself into the foundation of post war U.S. economy. As the authors put it, ” Through the New Deal was not it self ideological but rather ultimate in pragmatic policy experimentation, it became the definition of ideology that was post-World War II American liberalism: The regulation of finance, social safety net, mortgage insurance, high marginal tax rate, and big active government. It became the model of what government could do and should do.”
Most interesting argument in the book, is the authors analysis on how East Asian Economies, i.e. Japan, Korea and China etc, took the Hamilton-style economic planning, using deliberately low exchange rates, tariff and subsidies to protect local industries from international competitions. At the same time, adopters of this “East Asian Model” take advantage of the globalization, selling their manufactures to all around the world to help local industries grow even faster.
And what did U.S. do amid the rise of the East Asian model? U.S. inclined to growth “high-value added industries”, like Financial Services. By embracing deregulation of finance industry, finance grow tremendously as its share in U.S. economy grew rapidly. The result is excessive lending that eventually led to The Great Recession of 2008, and the rise of East Asian economic power. As the authors read it, U.S. just gave away part of its economic supremacy to the East Asia, for nothing in return.
Is this the correct analysis of the whole post 1980s world economic situation? Arguable. But the comparison between Hamilton style development strategy and the post-1980s U.S. economic development is striking. This makes me wonder, why U.S. had chosen the path it took…
August 20, 2023
The general thesis that American economy has been guided by structural changes pushed by political / government that has continually redesigned it and “improved” it makes sense. American economic history has been shaped by a series of pragmatic choices that enable a new set of entrepreneurs to succeed jives with my own personal beliefs. From a book standpoint, chapters 1-3 gloriously enumerate how that happened with Hamilton, the tariff, various acts such as Homestead Act, GI bill, defense technologies enabling a consumer market etc. However the book takes a turn by 4-5 when it explains where things went wrong per the East Asian model and focus on finance instead of manufacturing. While this generally makes broad sense, I wish the authors would provide some more concrete ideas on what to do next.
October 19, 2017
The message of this book is important -- that active federal policy has guided US economy since its beginning, and that until about 1980 such policies were guided pragmatically and were, for the most part, very good for the country. The current policy reinvention is based on the ideology of deregulation, with no concrete plan for the future, and with major serious detriments to the economy. The writing could be clearer (sentences sometimes do not follow clearly from the previous sentence), and sometimes economic technical jargon is used without explanation, but the overall message is clear and well supported, and I learned much about US economic history.
September 11, 2017
It's a thoughtful and provocative yet quick read. The authors start by walking through historical U.S. economic policy to show how the U.S. has pragmatically managed the economy. But more recently ideology has dominated pragmatism, which has led economic policy makers to abdicate management of the economy. Correspondingly, the U.S. economy has shifted from more productive activities like manufacturing to less productive activities like high finance. Anyway, it's worth a read, and it goes by quickly.
August 16, 2023
Finally finished Concrete Economics and I’m ready to present my findings to the esteemed members of this committee. A concise, energetic perspective on the past, present, and future of the American economy. The authors present a compelling description of the financial hypertrophy and industrial atrophy that have brought us to our present predicament. Their non-ideological prescription that we discuss future economic policy only in concrete, imageable terms resonates strongly with this reader. However they misused the phrase “pennies on the dollar” so I can award at most ⭐️⭐️⭐️⭐️
April 3, 2018
I found this book really interesting. Understanding how governments intervened in each of the main global economies to make them flourish from agricultural societies and moving up the value chain to the most important economies in the world. There was no invisible hand, but a clear governmental intervention to promote certain industries and activities. The cases of China, USA and Japan are some of the main countries addressed in this book and although all had different approaches, some approaches worked in one country and maybe not in others. There is no "one-fit-all" governmental intervention policy to be implemented but certainly questions whether laissez faire is the best approach to all economies. Maybe we should be paying more attention to what other major economies did in the past that might have worked.
May 26, 2018
Good book. I knew that Hamilton was the mastermind behind our original economy, but I didn’t know that Lincoln made some bold and helpful economic moves, in addition to everything else he had going on.
The part about how finance has taken over our economy was maddening.
Overall, I found the book helpful in my quest to understand economics and the economy.
The part about how finance has taken over our economy was maddening.
Overall, I found the book helpful in my quest to understand economics and the economy.
April 6, 2021
Concrete Economics describes how the US Government identified, opened, and developed new markets based on evolving circumstances and new technologies, as envisaged by Alexander Hamilton. An informative read, but the book that turned out to be what I was really looking for was The Economists' Hour by Binyamin Appelbaum. More on that in another post.
September 3, 2023
Εκπληκτικό βιβλίο οικονομικής πολιτικής και ιστορίας (και όχι θεωρίας). Το μόνο πρόβλημα: αναφέρεται και αφορά τις ΗΠΑ, χώρα ανεξάρτητη που μπορεί να καθορίσει (και να επανακαθορίσει) η ίδια την οικονομική της πολιτική.
Δυστυχώς, για μία χώρα σαν την Ελλάδα, μία τέτοιου είδους συζήτηση είναι εγκυκλοπαιδική - έστω κι αν δεν το λέμε δυνατά: δεν καθορίζουμε εμείς την οικονομική μας πολιτική.
Δυστυχώς, για μία χώρα σαν την Ελλάδα, μία τέτοιου είδους συζήτηση είναι εγκυκλοπαιδική - έστω κι αν δεν το λέμε δυνατά: δεν καθορίζουμε εμείς την οικονομική μας πολιτική.
August 16, 2019
Pretty easy and simple read. Uses the premise of "big government" is the only large enough entity to spend enough and effectively "lose" money in the short term (i.e., highways, bridges, dams, etc.).
August 27, 2020
I understand the importance of this argument - many people need to hear it - but ultimately it's easier to think of other books that cover its various themes better than this book.
June 3, 2022
An interesting look at economic development from a slightly non-mainstream point of view.
Read
February 3, 2024Not very concrete
November 12, 2019
The book makes for a good history of US economy and economic policy. However, it focuses too much on how economic policy was concrete, executed to solve real problems, wereas im the last couple of decades ideology has defined economic policy. The authors make little to no analysis of why ideology has taken such a big role, and what lies behind. Meaning, mainly, "concrete economics" was allowed at the expense of many groups (from slaves to minorities), and thus this ideology is a constraint on economic policy to avoid abuses. The authors just dismiss the downsides without giving a comprehensive analysis.
January 29, 2016
The U.S. government has shaped, directed, nurtured and directed its economy. No, that is not the start of a joke but an argued matter of fact. Of course, the economy can still develop a mind of its own and confound the best planning in the world, yet the authors of the book look past regularly repeated economic theories and argue that the government still can shape or nudge matters and will continue to do so with a reasonable degree of success.
There is no single mantra to follow nor no perfect solution. The authors contend that the government can and has set the ground rules for entrepreneurial activity and nudges the economy into certain areas, thus letting the created environment take over instead of forcing it along demarcated, ideological lines.
Missteps have been taken, it is claimed, such as the reboot of the economy in the 1980s when the U.S. walked headlong into an East Asian “trap” that targeted traditional U.S. manufacturing industries and instead of countering this threat head-on, it seemed everything was done to go along with this and seize the “advantages” that it was bringing in the short-term. Things, in the longer-term, however have been possibly damaged forever. How much manufacturing is made in the U.S. today? Are the skills there to train a new generation of workers? No, is the answer, even if the customers would be willing to pay the extra costs to have U.S.-sourced products again.
The authors have provided an interesting read that does not take sides or pursue a political line, preferring to adopt a mid-line, impartial course. Some of the detail might go over the head of the general reader, some of the arguments may lead to debate amongst friends but the core arguments do appear sound. Of course, hindsight is a wonderful thing, yet one can always learn from the past and hopefully work to avoid future issues. The U.S. economy does not operate in a vacuum, it is also affected by world events, yet it is of a sufficient size and scale to impact rather than just react to competing economies.
This was an interesting romp through history, economics and politics all mixed together. It was fascinating to a non-American too, providing a bit more background knowledge to what made and makes the U.S. tick. In places the book seems to veer out of focus or become a little repetitive, but there were more “highs” than “lows” in any case and the book was a compelling, engaging read.
There is no single mantra to follow nor no perfect solution. The authors contend that the government can and has set the ground rules for entrepreneurial activity and nudges the economy into certain areas, thus letting the created environment take over instead of forcing it along demarcated, ideological lines.
Missteps have been taken, it is claimed, such as the reboot of the economy in the 1980s when the U.S. walked headlong into an East Asian “trap” that targeted traditional U.S. manufacturing industries and instead of countering this threat head-on, it seemed everything was done to go along with this and seize the “advantages” that it was bringing in the short-term. Things, in the longer-term, however have been possibly damaged forever. How much manufacturing is made in the U.S. today? Are the skills there to train a new generation of workers? No, is the answer, even if the customers would be willing to pay the extra costs to have U.S.-sourced products again.
The authors have provided an interesting read that does not take sides or pursue a political line, preferring to adopt a mid-line, impartial course. Some of the detail might go over the head of the general reader, some of the arguments may lead to debate amongst friends but the core arguments do appear sound. Of course, hindsight is a wonderful thing, yet one can always learn from the past and hopefully work to avoid future issues. The U.S. economy does not operate in a vacuum, it is also affected by world events, yet it is of a sufficient size and scale to impact rather than just react to competing economies.
This was an interesting romp through history, economics and politics all mixed together. It was fascinating to a non-American too, providing a bit more background knowledge to what made and makes the U.S. tick. In places the book seems to veer out of focus or become a little repetitive, but there were more “highs” than “lows” in any case and the book was a compelling, engaging read.
March 31, 2016
America needs a pragmatic economic redesign.
This book argues in favor of a key role of government in the economy. The authors give examples of how the US government has been designing the path of the economy since the early days with Alexander Hamilton until the 80s.
I must say, I'm not a big fan of government but the authors have some pretty good facts. According to them this design has been pragmatic, not ideological as it is now.
They clarify that it is not the government alone who have made America great, but an "interdependence of entrepreneurship and government... coming together that reshapes and grows the economy."
The book refutes the conventional wisdom that US has been Jeffersonian or Jacksonian with small government and laissez faire. It hasn't been the opposite extreme (authoritarianism or socialism) but it surely hasn't been small government neither laissez faire. According to the authors it's been a mix, applying a little bit more of "this" when it's needed and a little bit more of "that" when "this" not needed anymore.
They lay their case using precedents through the US history. For example, Hamilton, Lincoln, Teddy Roosevelt, FDR, and Eisenhower, and how the rest of the presidents followed along the same lines, until Reagan.
The book criticises the great support to sectors like financial and real estate over others like manufacturing. And asks if they are really adding value to the real economy.
No doubt it is a polemical book and will touch some sensitive nerves. Definitely a good read.
This book argues in favor of a key role of government in the economy. The authors give examples of how the US government has been designing the path of the economy since the early days with Alexander Hamilton until the 80s.
I must say, I'm not a big fan of government but the authors have some pretty good facts. According to them this design has been pragmatic, not ideological as it is now.
They clarify that it is not the government alone who have made America great, but an "interdependence of entrepreneurship and government... coming together that reshapes and grows the economy."
The book refutes the conventional wisdom that US has been Jeffersonian or Jacksonian with small government and laissez faire. It hasn't been the opposite extreme (authoritarianism or socialism) but it surely hasn't been small government neither laissez faire. According to the authors it's been a mix, applying a little bit more of "this" when it's needed and a little bit more of "that" when "this" not needed anymore.
They lay their case using precedents through the US history. For example, Hamilton, Lincoln, Teddy Roosevelt, FDR, and Eisenhower, and how the rest of the presidents followed along the same lines, until Reagan.
The book criticises the great support to sectors like financial and real estate over others like manufacturing. And asks if they are really adding value to the real economy.
No doubt it is a polemical book and will touch some sensitive nerves. Definitely a good read.
July 1, 2016
Stephen Cohen y Bradford Delong examinan las transformaciones o rediseños que ha sufrido la economía de los Estados Unidos con Alexander Hamilton, Theodore y Franklin Roosevelt, Dwight Eisenhower y por ultimo Ronald Reagan. En todos ellos siempre el gobierno jugo un papel fundamental abriendo oportunidades económicas y creando los arreglos institucionales para que la economía de Estados Unidos creciera; desde Hamilton y hasta Eisenhower esto siempre fue una cuestión pragmática, alejada de la ideología, centrada en lo concreto no en lo abstracto y mientras fue así tuvo gran éxito.
El último rediseño el Reagan en los años ochenta, sin embargo, fue distinto eligio la desregulación y privilegio al sector financiero partiendo de una base ideológica no de un entendimiento de la economía del país o de los sucesos en el mundo, hoy vivimos en el mundo creado por ese último rediseño.
Los autores hacen un llamado a cambiar la forma en que se hace política económica, a ser concretos en lo que imaginamos, no ha tomar decisiones basadas en complejas abstracciones que resultan inimaginables.
Es un gran libro que entre la profesión económica en México debe tener mayor atención.
El último rediseño el Reagan en los años ochenta, sin embargo, fue distinto eligio la desregulación y privilegio al sector financiero partiendo de una base ideológica no de un entendimiento de la economía del país o de los sucesos en el mundo, hoy vivimos en el mundo creado por ese último rediseño.
Los autores hacen un llamado a cambiar la forma en que se hace política económica, a ser concretos en lo que imaginamos, no ha tomar decisiones basadas en complejas abstracciones que resultan inimaginables.
Es un gran libro que entre la profesión económica en México debe tener mayor atención.
August 27, 2016
Cohen and DeLong have written a timely book that should remind us that government has and still could play a powerful role in driving political economic decisions and growth. And they demonstrate how an ideological drive toward free-market, deregulatory policy -- lacking any concrete vision for a desired end state -- has taken the US economy down the path of inequality, instability and imbalance. The book seems to have been written in a 'rushed' fashion that often relies on qualitative and generalist observations rather than hard data but nevertheless delivers strong arguments for rethinking our approach to economic policy. This is an important read given the tenuous state of our economy with low growth, high un/underemployment and weak growth amidst an utterly irrational and ideologically driven aversion to using government to both steer policy and stimulate innovation and growth.
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