By James Kwak
Alexander Hamilton is a big deal these days. Apparently there’s a musical about him—something I only found about when I saw Lin-Manuel Miranda’s Rose Garden video on Twitter (which tells you something about my relationship to popular culture). In their new book (on which more later), Jacob Hacker and Paul Pierson invoke Hamilton to defend their vision of an interventionist government and a mixed economy. And Stephen Cohen and Brad DeLong have titled their new book Concrete Economics: The Hamilton Approach to Economic Growth and Policy.
I like to think that Simon and I were on the leading edge of this mini-trend when we featured Hamilton in our 2011 Vanity Fair article and in White House Burning. But it’s no surprise that people turn to Hamilton today, when what used to be known as the Tea Party (now simply the Republican Party) dreams of recreating a libertarian founding moment that never existed. Hamilton stood for a (relatively) strong central government, deficit spending, and what would now be called industrial policy, all with the intent of fostering economic growth.
Concrete Economics is less about Hamilton’s particularly approach to economic policy than about an overall attitude of which Hamilton cited as an exemplar: in short, a pragmatic rather than ideological approach to policymaking, one which used government resources and power to pursue specific goals. The best contrast is between the Republican Party c. 1955—which used state power to suburbanize the country, build up the military, and spin off the technologies that turbocharged productivity growth—and the Republican Party of the past 35 years, which (along with a considerable amount of Democratic abetting), which slashed government spending and deregulated the financial sector for ideological reasons (free flow of capital, free markets, blah, blah, blah).
If Cohen and DeLong are right about the broad course of American economic history, then the big question is why the we had this major transformation in overall attitudes toward policymaking. There are two major ways to think about this historical shift. One is to look at the ideas involved: maybe what happened is that people suddenly started believing “neoclassical” economic theories about the benefits of free markets (particularly for capital) and small government, and then acted on those beliefs. The other is to look at the who benefited: financial institutions, financial professionals, corporate executives, and rich people generally all stood to gain from lower taxes, smaller government, and financial deregulation. Superstructure, base.
The truth, I think, is that both stories are true. We have had a major ideological shift since the 1950s, from the idea that the government can play a positive role in influencing economic development, to the idea that government is either evil and incompetent and free markets can solve all problems. As Dick Armey (remember him?) said, “The market is rational and the government is dumb.” This naive belief that the simple results people remember from Economics 101—supply and demand interact to maximize social welfare—actually apply in the real world has produced decades of bad policies, and continues to be spouted by the Paul Ryan wing of the Republican Party. But the rise of that ideology did not happen by itself; it was organized and funded by wealthy businessmen, large corporations, and conservative foundations, as amply documented by historians such as Kim Phillips-Fein, Gareth Stedman Jones, Elizabeth Fones-Wolf, and many others.
To turn the tide, it won’t be enough simply to tell people that they should be more practical and less ideological. Powerful interest groups have to decide that they would be better served by different policies based on different ideas. There are glimmers of hope that that might happen in particular areas; for example, the corporate sector may be very slowing coming around to the idea that destroying the planet may not be so good for future profits. But on the whole, the very wealthy—who basically control the American political system—seem to be happy with the way things are. Which is one indication that things are unlikely to change anytime soon.