Acton Institute Powerblog

The Next American Economy Is Cause for Hope

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The latest from Samuel Gregg lays out a broad vision for what made the American economy the wonder of the world, and can again. And it isn’t to be found in populisms and nationalisms of the right or left.

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Let me start with my summary judgement of The Next American Economy: Nation, State, and Markets in an Uncertain World: Samuel Gregg has written an outstanding contribution to the theory and practice of political economy for our times. Gregg’s book will appeal more to those on the center-right than to the center-left, but he nevertheless has identified the fatal flaws in the rhetoric and practice of those on the populist right (Trump) and the populist left (Sanders), as well as those who consider themselves more sophisticated representatives of economic nationalism on the right (Rubio) and left (Warren). I say the book will appeal to the center-right and pull them away from the pitfalls of economic nationalism because of the intellectual inspiration that Gregg proudly relies on—the Founding Fathers and the desire to create a commercial republic. The center-left, on the other hand, has grown tired of appeals to constitutional principles and the aspirations of the American promise. In fact, that is the problem that Gregg’s book is motivated to address.

Gregg begins by stressing the obvious to anyone who has paid attention: The pro-market consensus that was once shared by politicians of both parties has evaporated in the decades since 2000. In fact, Gregg identifies the 1990s as the high-water mark for that consensus, when then President Clinton declared the era of Big Government to be over. In rhetoric at least, the New Deal and the Great Society were no longer the motivating economic ideology; instead free market capitalism, trade and immigration, and globalization were foremost on the agenda. In reality, however, the practicein politics was to favor interest groups and manage the economy to concentrate benefits on the well-informed and well-organized, and disperse the costs among the ill-informed and unorganized. In short, the modern economy in America is similar in structure and operation to the mercantilist economy that Adam Smith focused his critical skills on in An Inquiry into the Nature and Causes of the Wealth of Nations.

The practice of crony capitalism invites the ire of critics left and right. Success in such a system is a result of the ability to capture and direct government power to rig the game in your favor. As Gregg perceptively states:

The market’s outward form is preserved, but its protocols and institutions are subverted by businesses seeking preferential treatment from regulators, legislators, and governments via means like tariffs (a tax imposed by a government of a country on imports or exports of goods), subsidies, access to “no-bid” contracts, or government-provided credit at below-market interest rates.

Add to the list the “too big to fail” logic protecting the financial industrial complex, the “national security” pleading by the military industrial complex, and the “public good” justification of the education industrial complex. As Gregg knows, this “rent-seeking” state has been the object of criticism and scorn by economists ranging from Adam Smith and Joseph Stiglitz (whom Gregg cites) to great modern champions of the free market system such as F. A. Hayek and Milton Friedman. But all the scientific examinations and public admonitions have not been able to provide an effective bulwark against politicians’ catering to special interests, and the special interests often hypocritically arguing for free trade and dynamic competition for everyone but them.

None of this is really new; it just has accelerated in the 21st century owing to a series of events—from 9/11 (which Gregg doesn’t discuss in depth), the Global Financial Crisis, and COVID-19. But Gregg does highlight the unique experience with government power that the response to the pandemic, for example, represents. And this sets the stage for any discussion about how we will go forward. If we do a stocktaking, the American economy in the 21st century is popularly viewed as a perpetuator of injustice that suffers from an instability that only reinforces the injustice, thus leading to a growing sense of despair and dread among those left behind, and resentment toward those lucky few who benefit in terms of growing wealth and political privilege.

Gregg’s main point is that our choices going forward will matter greatly, not only to alter that perception, but also to alter the fate of our children and grandchildren. The American economy does not just work because it is located in this geography; it does so because of the ideas that impact the climate of public opinion and the policies chosen within that climate of opinion. We could easily make choices in the policy space that would lead us toward the social democratic political economy adopted in western Europe, which has produced economic stagnation. We could go in the direction of China, as well, and abandon any notion of a democratic consensus and instead centralize economic decision making, and with that sacrifice our political freedoms. Gregg emphasizes that these are all choices that can be made by any polity, and they matter. After all, we have transitioned from different epochs before in rhetoric and reality. The Age of Commerce (1660­–1860) gave way to the Age of Capital (1860–1932), which in turn gave way to the Age of Control (1932–1980), which eventually produced the Age of Chaos (1980-). This last terminology (borrowed from Jonathan Levy) is unfortunate, I would argue, and prefer instead Andrei Shleifer’s descriptions of the post-1980 period as The Age of Milton Friedman.

But ideas and events have conspired to discredit this post-1980 period, and thus we are transitioning to a new epoch, and Gregg’s book is an effort to argue that our path forward must begin with a deep look back to the vision of the Founding Fathers. Quoting Doug Irwin and Richard Sylla, Gregg wants his readers to understand that “the economic policy choices of the founding era released a burst of energy that could persist for more than two centuries.” It is this “burst of energy” that The Next American Economy wants to champion. And Gregg does just that: In the subsequent chapters we learn that protectionism doesn’t pay and industrial policy simply does not work. We also learn that we must build up stronger mechanisms to keep businesses from garnering special privileges. As he stresses, sound economic analysis that favors a free market economy should never be confused with support for business and businessmen per se. Both Adam Smith and Milton Friedman pointed out in unflattering terms how capitalists often strive to undermine capitalism. Mercantilism was a system of political privileges to the powerful elite, and cronyism and political capitalism continue this practice. Free markets, on the other hand, challenge the status of the powerful and the privileged. The “burst of energy” that Irwin and Sylla are talking about comes from ordinary individuals given enough elbow room to produce extraordinary things. The alternative theory suggests that extraordinary people (elite leaders) can accomplish extraordinary things if we only give them enough power. But the system of monopoly experts that such a theory logically leads to produces stagnation in knowledge creation and injustice in public institutions of law and legislation. Innovation in the private and public sectors is based in freedom and leads to the opposite. As Matt Ridley puts it in his wonderful book on How Innovation Works: “Innovation is the child of freedom, and the parent of prosperity.” Now that is a motto folks might be able to get behind if they understood all that is entailed in that statement.

Beginning with chapter 5, Gregg lays out his alternative vision for the future grounded in the vision of the Founders but modified for our age—a more inclusive and diverse age, and a more complex and technologically advanced age. Gregg details how we can, through our policy choices, produce a more creative nation, a more competitive nation, and a free trading nation (which is also a peaceful one, though also stronger one). In his laying out the political agenda for a commercial republic, Gregg turns not only to the thought of Adam Smith and F. A. Hayek, but more directly to The Federalist Papers and to President Washington’s Farewell Address—an address that, while warning about political alliances, argued forcefully for free commerce throughout the territory of the United States and in fact throughout the world. As quoted from the address: “The great rule of conduct for us in regard to foreign nations is in extending our commercial relations, to have with them as little political connection as possible.” It is this idea that challenges the economic nationalist impulse communicated with great passion and a mixture of patriotic sentiment and protectionist arguments, whether articulated by Henry Clay in the 19th century or by Marco Rubio and Elizabeth Warren today.

Like Washington, Gregg hopes to “teach Americans that the yet-to-come greatness of their country was inseparable from freedom of enterprise.” The New Age must distant itself from the policy prescriptions of 18th century mercantilism and 21st century protectionism. The New Age must be defined by a return to sound economics. The idea of an American Commercial Republic “repudiates state capitalism, whether from left or right” and also “rebukes those (again, on the left and right) who appear to have no particular affection for America and its experiment in freedom.” A new Age of the American Commercial Republic, Gregg believes, “presents the United States with the possibility of embracing a political economy characterized by hope and grounded in confidence about the perpetual potentialities of the American way of liberty and virtue.” Gregg insists that “when there is hope, especially when grounded in something extraordinary like the story of America, nothing is definitively lost.”

Gregg does a great job linking the ideas of sound economics and its representatives like Adam Smith and F. A. Hayek, and many others who challenged protectionism and industrial policy, and the spirit of the American founding documents. But like many valiant efforts, I am not sure it will reach the majority of today’s youth, unfortunately. It will resonate well with the youth of the late 1970s and early 1980s (e.g., me sitting in Dr. Hans Sennholz’s class hearing very similar message), but the 19-to-22-year-old today has a different set of priorities that must be addressed. They are moved by Bernie, not Warren. We have to find a way to reach them. Sam Gregg admits to the inconsistencies in the founding documents, but it is not stressed in a way that I think would help his cause. Don Lavoie’s National Economic Planning: What Is Left? (originally published in 1985, but reprinted in 2016) is a little more direct about the American ideal falling short due to the fact that, in practice, “equal rights were incompletely extended to women and withheld altogether from blacks and Native Americans.” And, despite the rhetoric of free enterprise and free trade, the government of the American founding period established monopoly privileges and introduced protectionist privileges. As Lavoie puts it: “Such remnants of coercion were not only inconsistent with the general principles that fueled the American revolution but were also ultimately to prove the causes of most of the nation’s problems—and shame—since. It was this incompleteness that let Americans massacre Indians, enslave blacks, and restrict the rights of women.”

Unless we face up to these inconsistences, any hope for the sort of Commercial Republic Gregg outlines for America will not get the needed support from the broader the population. But the message to the young is not to minimize the shame, nor to claim that the shame means that the American experiment is irredeemable. As Lavoie argues, the horrors of communism in the Soviet Union demonstrates that the problem with the Russian Revolution was the very direction it was trying to go. We must never forget what that experiment has taught us. The problem with the American Revolution is not the direction it pointed to, but that the leaders were unwilling to push further in that direction. “Our task,” Lavoie writes, “is to complete the American revolution. Unlike the failed Marxist utopia of Planning, the Jeffersonian, Market-guided society is a workable ideal, an ideal that when properly understood is far more consistent with humanitarian and internationalistic values.”

As Gregg stresses repeatedly, the Great Fact of human history—that modern economic growth followed from the expansion of enterprise and entrepreneurial innovation—experienced in the U.K. and then the U.S. was a function of policy choices that unleashed the great energy of the people. But those choices were made because of a shift in the habits and incentives of the market and the language, as well as in the norms and virtues of the American experiment. It is the language, norms, and virtues of enterprise and entrepreneurship that must capture the imagination of the younger generation if the New Age is to usher in an era of generalized prosperity. Sound economics has always emphasized the hope that entrepreneurial alertness and creativity provides. And finally, sound economics teaches that free enterprise and free trade provide the best means for those with compassion to effectively address the improvement of the least advantaged and the most vulnerable among us.

Gregg is no doubt correct when he states that “economic truth is not sufficient to settle these questions.” But it sure would help if teachers and communicators stressed to the young sound economics: the logic of choice against given constraints, the beauty and complexity of modern economic life, the hope of human betterment through mutually beneficial exchange and entrepreneurial ingenuity that discovers cost-saving techniques in production and distribution, creating new goods and services. And it would also help if our teachers and communicators of economic truth stressed the consequences of economic freedom for the least advantaged and most vulnerable. In 2015, it was recorded that for the first time in human history, less that 10% of the world’s population was living in extreme poverty. When I was a college student learning economics, that number hovered around 37%. Think about that for a second. The Age of Milton Friedman produced that! It wasn’t an Age of Chaos, but an Age of a Great Escape from the misery of the Malthusian trap for billions. Our college students today need to understand that. They don’t. Or at least they don’t understand the full meaning and implications of that number.

Let me end where I started. Samuel Gregg has produced a fantastic book that should be on the shelf of all citizens who care about our future as a self-governing political community. As he argues, we must embrace the American experiment and fulfill its promise of freedom and prosperity for a new generation. With The Next American Economy, Gregg has made a significant contribution to the political economy of our times. He has effectively countered the arguments on right and left that agitate for protectionism and industrial planning and against free enterprise and free trade. He has also given us a vision of a creative, competitive, and peaceful America for the 21st century. It is my sincere hope that his book gets a wide readership and that it impacts the public discourse in this country, which desperately needs Samuel Gregg’s calm voice and deliberate and scholarly demeanor to counter the poisonous and odious rhetoric that defines our current political culture.

Peter J. Boettke

Peter J. Boettke is University Professor of Economics & Philosophy at George Mason University.