Concrete Economics

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

Last updated: November 19, 2024