Key Takeaways
1. America's economic success stems from pragmatic government intervention
In successful economies, economic policy has been pragmatic, not ideological. It has been concrete, not abstract.
Government as economic architect. Throughout U.S. history, the government has repeatedly reshaped the economy by opening new economic spaces and enabling entrepreneurs to exploit them. This process involved:
- Setting clear, concrete goals for economic development
- Implementing policies to support targeted industries (e.g., tariffs, subsidies)
- Creating infrastructure and institutions to facilitate growth
- Allowing private enterprise to innovate and expand within the new framework
Pragmatism over ideology. Unlike recent ideologically-driven approaches, successful U.S. economic policy has historically been characterized by:
- Flexibility in adapting to changing circumstances
- Focus on tangible outcomes rather than abstract theories
- Willingness to experiment and adjust based on results
- Balancing government intervention with market forces
2. Alexander Hamilton shaped America's economy through strategic policies
Hamilton, the founding father of the American economy, led the way, intellectually and politically, pushing policies to promote industry, commerce, and banking.
Hamilton's economic vision. As the first Treasury Secretary, Alexander Hamilton implemented a series of policies designed to transform the United States from an agrarian economy to an industrial power:
- High tariffs to protect infant industries
- Creation of a national bank to stabilize currency and facilitate trade
- Assumption of state debts by the federal government
- Government support for infrastructure development
Long-lasting impact. Hamilton's policies set the stage for American industrialization and economic growth by:
- Encouraging domestic manufacturing and technological innovation
- Establishing a strong financial system to support economic expansion
- Creating a unified national economy rather than a collection of state economies
- Laying the groundwork for future government involvement in economic development
3. Post-Civil War era saw continued government-led economic redesign
The post–Civil War Republican ascendancy doubled down on Hamilton's project.
Expanding economic opportunities. The Republican-led government after the Civil War implemented policies to promote industrial growth and westward expansion:
- Homestead Act: Provided free land to settlers, encouraging westward migration
- Land-grant colleges: Established to promote agricultural and technical education
- Transcontinental railroad: Heavily subsidized by the government to connect East and West
Protectionism and corporate growth. The government continued to support domestic industry through:
- High tariffs on imported goods
- Creation of new corporate structures with limited liability
- Encouragement of large-scale industrial enterprises
These policies led to rapid industrialization, technological innovation, and the emergence of the United States as a global economic power.
4. The Progressive movement corrected Gilded Age excesses
Out went the old Republican ideology and abstractions. In came pragmatic, practical, and concrete change to tame the most flagrant abuses of the new monopoly-led, robber-baron economy.
Addressing economic imbalances. The Progressive movement, led by figures like Theodore Roosevelt, sought to correct the excesses of rapid industrialization:
- Anti-trust legislation to break up monopolies
- Regulation of railroads and other key industries
- Consumer protection laws (e.g., Pure Food and Drug Act)
- Labor protections, including limits on child labor
Balancing government and markets. Progressives aimed to:
- Preserve the benefits of industrial capitalism while mitigating its negative effects
- Use government power to check corporate excesses
- Improve living and working conditions for ordinary Americans
- Maintain economic dynamism while promoting social stability
5. FDR's New Deal reshaped the economy through rapid, pragmatic action
The New Deal was the only redesign that did not focus on opening a new economic space for growth and transformation. It focused on emergency repair, on humanitarian measures, on redistribution, on fairness, and on the control of finance.
Crisis response and economic reform. Franklin D. Roosevelt's New Deal was a rapid, multi-faceted response to the Great Depression:
- Banking reforms to stabilize the financial system
- Public works programs to create jobs and improve infrastructure
- Social Security to provide a safety net for the elderly and unemployed
- Labor reforms to protect workers' rights and promote unionization
Pragmatic experimentation. The New Deal was characterized by:
- Willingness to try multiple approaches simultaneously
- Quick implementation and adjustment based on results
- Focus on immediate relief as well as long-term structural changes
- Creation of new government institutions to address economic challenges
6. Post-WWII era saw government-driven technological innovation and suburbanization
Military spending shifted toward the South and the Southwest from the Northeast and Midwest. In part this reflected a shift to airpower, in part the continuation of deliberate regional development policy, and in no small measure from the disproportionate and generally permanent position of Southern senators and congressmen on the key committees that controlled the military budget.
Government-led innovation. Post-WWII economic growth was heavily influenced by government spending and policy:
- Military and space program spending driving technological advancements
- Government support for research and development in key industries
- Creation of interstate highway system facilitating commerce and suburbanization
Reshaping American society. Government policies promoted:
- Suburban development through mortgage subsidies and highway construction
- Mass higher education through the GI Bill and support for public universities
- Regional development, particularly in the South and West
These policies contributed to the long post-war economic boom and reshaped American society and geography.
7. East Asian economies successfully adopted state-led development models
China disciplined itself to the macro levers of the basic East Asian model: high rates of savings, repressed rates of returns to savers, high rates of investment, low rates of consumption, export surpluses.
State-guided industrialization. East Asian countries, including Japan, South Korea, and China, achieved rapid economic growth through:
- Government direction of investment into strategic industries
- Protection of domestic markets while promoting exports
- Close cooperation between government and business
- Emphasis on education and skill development
Challenging Western economic orthodoxy. The East Asian model demonstrated that:
- State intervention could accelerate economic development
- Export-led growth could rapidly close the gap with advanced economies
- Industrial policy could be effective in promoting specific sectors
However, this model also created challenges, including trade imbalances and the need for eventual economic rebalancing.
8. America's shift to finance-led growth has led to economic imbalances
We cannot afford to have a high-finance sector so large that we again run risks of another 2008—or, even worse, another 1929.
Financialization of the economy. Since the 1980s, the U.S. economy has increasingly shifted towards financial services:
- Deregulation of the financial sector
- Growth of the financial sector as a share of GDP and corporate profits
- Increased complexity and risk in financial instruments
- Decline in manufacturing as a share of the economy
Negative consequences. This shift has led to:
- Increased economic instability and risk of financial crises
- Growing income inequality
- Misallocation of resources away from productive investments
- Erosion of the middle class and manufacturing base
9. Concrete, pragmatic economic policy is needed for future success
Shift discussion of economic policy to the concrete, where it had recurrent successes. Pull it out from the speculative realms of ideology and its handmaiden theoretical abstractions.
Return to pragmatism. To address current economic challenges, policymakers should:
- Focus on concrete goals and outcomes rather than ideological purity
- Be willing to use government tools to shape economic development
- Adapt policies to changing economic circumstances
- Balance the needs of different economic sectors and social groups
Learning from history. Successful economic policy should:
- Draw lessons from past successes in government-led economic development
- Avoid over-reliance on any single economic sector or theory
- Prioritize broad-based economic growth and stability
- Be open to experimentation and course correction based on results
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FAQ
1. What is "Concrete Economics: The Hamilton Approach to Economic Growth and Policy" by Stephen S. Cohen and J. Bradford DeLong about?
- Focus on Economic Redesign: The book explores how the U.S. economy has been repeatedly and deliberately reshaped by pragmatic government policy, starting with Alexander Hamilton and continuing through major historical periods.
- Pragmatism Over Ideology: It argues that successful economic growth in America has come from concrete, practical policy decisions rather than abstract theories or rigid ideologies.
- Government and Entrepreneurship Interplay: The authors highlight the essential, often uneasy partnership between government action and entrepreneurial energy in driving economic transformation.
- Historical Case Studies: The book provides detailed historical examples, from Hamilton’s industrial policies to the New Deal, Eisenhower’s era, and the rise of East Asian economies, to illustrate its thesis.
2. Why should I read "Concrete Economics" by Cohen and DeLong?
- Understanding Policy Impact: The book offers a clear, accessible explanation of how economic policy shapes national prosperity, making it valuable for anyone interested in economics, history, or public policy.
- Debunking Myths: It challenges the myth that America’s economic success is rooted in laissez-faire, small-government ideology, providing a more nuanced historical perspective.
- Lessons for Today: The authors argue that the U.S. needs another pragmatic economic redesign, making the book highly relevant for current debates about economic policy and growth.
- Engaging and Readable: Written to be enjoyable and understandable, the book avoids technical jargon and focuses on storytelling and real-world examples.
3. What are the key takeaways from "Concrete Economics" by Stephen S. Cohen and J. Bradford DeLong?
- Pragmatism Drives Growth: America’s economic success has come from practical, concrete policy choices, not from adherence to ideology or economic theory.
- Government’s Central Role: Major economic advances have required active government intervention to open new economic spaces and support emerging industries.
- Sequential Redesigns: The U.S. economy has been repeatedly redesigned—by Hamilton, Lincoln, the Roosevelts, Eisenhower, and others—each time adapting to new challenges.
- Recent Policy Failures: Since the 1980s, ideological, abstract policy choices have led to economic stagnation, financial sector bloat, and the hollowing out of manufacturing.
- Call for Concrete Debate: The authors advocate for a return to concrete, image-able policy debates to guide the next necessary economic redesign.
4. How do Cohen and DeLong define the "Hamilton Approach" to economic growth in "Concrete Economics"?
- Active Government Leadership: The Hamilton Approach centers on the government taking a leading, pragmatic role in shaping the economy, rather than leaving it to market forces alone.
- Protection and Promotion: It involves protecting infant industries, investing in infrastructure, assuming state debts, and creating a central bank to foster industrial growth.
- Shifting Comparative Advantage: The approach is about deliberately changing the nation’s comparative advantage over time, not just exploiting existing strengths.
- Durable Policy Coalitions: Once established, Hamiltonian policies created powerful interests that sustained them, even when political leadership changed.
5. What are the main historical examples of economic redesign in the United States discussed in "Concrete Economics"?
- Hamilton’s Industrialization: The initial redesign, with tariffs, infrastructure investment, and financial system creation, set the foundation for U.S. industrial power.
- Lincoln and the Republicans: Post–Civil War policies included high tariffs, railroad subsidies, the Homestead Act, and support for free labor and education.
- The Progressive Era and Teddy Roosevelt: Regulation of monopolies, antitrust laws, and the creation of the income tax addressed the excesses of the Gilded Age.
- FDR’s New Deal: A pragmatic, experimental response to the Great Depression, focusing on economic stabilization, social safety nets, and financial regulation.
- Eisenhower’s Consensus: Preservation and expansion of New Deal policies, massive infrastructure (highways, suburbs), and government-driven technological innovation.
6. How does "Concrete Economics" explain the role of government versus markets in economic development?
- Government as Enabler: The book argues that government must open new economic spaces and provide the conditions for entrepreneurs to innovate and expand.
- Markets Need Guidance: While markets are essential for innovation and efficiency, they require direction, infrastructure, and sometimes protection to function optimally.
- Pragmatic, Not Ideological: Successful policy is not about choosing government or markets, but about using both pragmatically to achieve national goals.
- Historical Evidence: The authors show that every major period of U.S. economic growth involved significant government intervention, contrary to laissez-faire myths.
7. What is the "East Asian Model" and how does "Concrete Economics" compare it to the American experience?
- Developmental State Concept: The East Asian Model, pioneered by Japan and adopted by Korea and China, involves active government direction of industrial policy, export orientation, and protection of key industries.
- Hamiltonian Roots: The authors argue that this model is essentially a modern adaptation of Hamilton’s approach, focusing on catching up with advanced economies.
- Contrast with U.S. Since 1980s: While East Asia continued pragmatic, concrete policy, the U.S. shifted to abstract, ideological approaches, leading to relative decline in manufacturing and innovation.
- Lessons for the U.S.: The book suggests America can learn from East Asia’s success in using government policy to drive economic transformation.
8. What does "Concrete Economics" say about the rise and consequences of financial sector "hypertrophy" in the U.S.?
- Explosive Growth of Finance: Since the 1980s, the financial sector has grown from about 4% to over 8% of GDP, capturing up to 40% of corporate profits.
- Policy-Driven Expansion: This growth was enabled by deliberate deregulation, ideological faith in markets, and the dismantling of New Deal-era controls.
- Negative Economic Impact: The authors argue that much of this growth is zero-sum or negative-sum, enriching a few while draining resources from productive sectors.
- Crowding Out Real Growth: Excessive finance has crowded out manufacturing and innovation, contributing to economic stagnation and inequality.
9. How does "Concrete Economics" critique the economic policy shift in the U.S. since the 1980s?
- Ideology Over Pragmatism: The book criticizes the turn toward abstract, market-fundamentalist ideology, which replaced concrete, image-able policy choices.
- Hollowing Out Manufacturing: Policy choices favored finance, real estate, and health insurance processing over productive, high-value industries.
- Concealed Consequences: The lack of concrete policy vision allowed policymakers to obscure the negative effects of these changes from the public.
- Call for Redesign: The authors argue that the U.S. needs another pragmatic, concrete economic redesign to restore growth and shared prosperity.
10. What specific policy tools and methods does "Concrete Economics" recommend or highlight for successful economic redesign?
- Targeted Protectionism: Use of tariffs and other measures to nurture emerging industries until they can compete globally.
- Infrastructure Investment: Large-scale government spending on transportation, research, and technology to create new economic opportunities.
- Financial System Design: Creation and regulation of financial institutions to support productive investment rather than speculation.
- Pragmatic Experimentation: Willingness to try, evaluate, and adjust policies based on what works, rather than sticking to ideology.
11. What are some of the most important concepts or definitions introduced in "Concrete Economics"?
- Concrete vs. Abstract Policy: Concrete policy is pragmatic, specific, and image-able; abstract policy is theoretical, ideological, and often disconnected from real outcomes.
- Economic Redesign: The deliberate, government-led reshaping of the economy’s structure to open new spaces for growth.
- Developmental State: A government that actively organizes and directs industrial development, as seen in East Asia and early U.S. history.
- Hypertrophy of Finance: The excessive growth of the financial sector beyond what is needed for productive economic activity.
12. What are the best quotes from "Concrete Economics" by Cohen and DeLong, and what do they mean?
- “In successful economies, economic policy has been pragmatic, not ideological. It has been concrete, not abstract.”
This encapsulates the book’s central thesis: real-world results come from practical, not theoretical, policy. - “The invisible hand was repeatedly lifted at the elbow by government, and re-placed in a new position from where it could go on to perform its magic.”
The authors argue that markets need government guidance to function optimally. - “We have forgotten our history. This book seeks to remind us of our history.”
The book’s purpose is to recover the lost tradition of pragmatic economic policy in America. - “America needs another economic redesign.”
The authors call for a new, concrete, pragmatic approach to economic policy to address current challenges. - “The art of politics is to move the politically possible to overlap the economically sensible.”
Effective policy requires aligning practical economic solutions with what is politically achievable.
Review Summary
Concrete Economics is praised for its pragmatic approach to economic policy, emphasizing the historical role of government in shaping the U.S. economy. Readers appreciate the book's concise overview of economic history and its critique of ideological decision-making. While some disagree with certain points, many find the authors' argument for concrete, non-ideological economic planning compelling. The book's analysis of recent financial sector growth and its impact on manufacturing is particularly noted. Overall, reviewers consider it a thought-provoking read on economic policy and development.
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