Concrete Economics: A book review by Bob Morris

Posted on: April 13th, 2016 by bobmorris

Concrete EconomicsConcrete Economics: The Hamilton Approach to Economic Growth and Policy
Stephen Cohen and J. Bradford DeLong
Harvard Business Review Press (March 2016)

How and why getting economic policy right “is and has been of overwhelming importance in generating prosperity”

Opinions vary as to when, why, and to what extent major financial crises occur but the fact remains that there have been several throughout US economic history. Policies either failed or proved inadequate and needed to be redesigned. Stephen Cohen and J. Bradford DeLong explain that their book “is about government and entrepreneurship. But it will not rehash the sturdy and well-known arguments that, to thrive, an entrepreneurial economy needs an environment characterized by a broad range of freedom, protections, and incentives. Consider that argument axiomatic. We are here to talk about the other interplay of government and entrepreneurship. And it is very important.”

I agree and here is a key point that is made throughout Cohen and DeLong’s lively narrative: whenever government officials took a pragmatic approach to economic policy, entrepreneurship (broadly defined) thrived; when their approach was ideological, the results were far less satisfactory and on several occasions disastrous. “Getting economic policy right — and getting the political economy right [another key point] — is and has been of overwhelming importance in generating prosperity.”

These are among the passages of greatest interest and value to me, also listed to suggest the scope of Cohen and DeLong’s coverage:

o History of redesigns in economic policy (Pages 6-15)
o Alexander Hamilton ( 7-9 and 33-52)
o American system of manufacturing (8-9, 34-35, and 44-45)
o Economy redesign by Theodore Roosevelt (10-11 and 67-74)
o East Asian development(16-25 and 121-156)
o Ideological approach to economic policy (16-25)
o The Jefferson myth of small Government (27-28)
o Hamilton’s redesign of economic policy (27-54)
o Abraham Lincoln (55-66)
o Homestead Act and agriculture (63-67)
o The New Deal (74-82)
o Eisenhower-era economic redesign (83-119)
o Automobiles (92-93 and 97-98)
o Defense spending on digital technologies (111-119)
o East Asian model for export-based development (126-156)
o China-US trade balances/imbalances (145-151)
o US responses to East Asian development (157-186)
o Financial crises (166-167)
o Financial deregulation and financial policy (169-175)
o Deregulation of banks and banking (175-182)
o Pragmatic approach to economic policy (188-192)

For me, one of the most important themes that Cohen and DeLong explore is suggested in the book’s title: Shift discussion of economic policy back to the concrete, where it had recurrent successes in the past. More specifically, the Hamiltonian approach to economic growth and policy. “It worked and so very quickly it had become too strong and too useful to too many powerful groups for any Jeffersonian political coalition to dismantle. 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 the states’ debts by the federal government, and a central bank.”

I agree with Stephen Cohen and J. Bradford DeLong that the United States economy needs another redesign. That is, “Pull it out from the speculative realms of ideology and its handmaiden theoretical abstractions. Push thinking and talking and proposing about what we should do about economy into concrete terms. Insist that proposed shifts be coached so as to be image-able, as in ‘This is the kind of result we will get.’ This will help more than anything else we can imagine to reshape the economy in a positive direction, and our society as well.”

As I observe the current political environment, I have serious doubts that much can be done to make that vision a reality. I cannot recall a prior time (at least in my lifetime) when communication, cooperation. and collaboration between and within the two political parties were worse than they are today. Meanwhile, I am again reminded of these lines from Yeats’s The Second Coming:

“Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.”

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bobmorris