A Hamiltonian Government
Putting Innovation at the Center of America's Economic Debate
For a moment, the Great Recession appeared to usher in a new era in which progressive economics would gain widespread support. Both parties accepted direct intervention in the economy as an essential response to the financial and economic crises. The outgoing Bush administration pumped billions into the teetering banking industry, while Obama called for massive stimulus spending to avert catastrophe.
While the resurgence of Keynesian economics was clarifying for the Left, the long-term picture remained muddled. The debate over short-term spending and the deficit further distracted from the bigger questions. How would the United States return to a period of robust and sustainable growth? What role should the state play in driving that growth?
Yet there are histories, if not yet an economics, that point in the right direction: an energetic public sector that drives innovation and subsequent economic growth.
Roughly 80 percent of economic growth has come from technological change, and the government has acted repeatedly as a catalyst for that innovation. Publicly funded research and development has led to breakthrough new technologies, and the government has routinely served as an early and demanding customer for new high-risk technologies that lacked a market or proper incentives to garner private sector funding.
The fruits of government-led efforts, often in close partnership with the private sector, have been bountiful indeed. From high-yield agriculture to biotech, the railroads to aviation and jet travel, microchips to personal computers and the Internet, nuclear power to shale gas, solar and wind, the government has played a pivotal and indeed outsized role in American innovation, as the Breakthrough Institute demonstrated in the report "Where Good Technologies Come From."
Those looking for pragmatic ways to drive growth and enhance American competitiveness are taking note of that history. President Obama referenced it in his last two State of the Union addresses as he called for major public investments in innovation.
And in one of the most ambitious efforts to date, Michael Lind catalogues the government's changing role in advancing economic growth in his new book, Land of Promise, which earned a review by Pulitzer Prize-winning journalist David Leonhardt on the cover of the New York Times' Sunday book review.
Lind, who will give a keynote address at next month's Breakthrough Dialogue, argues that technological innovations have driven transformations in society and commerce, and that a certain political arrangement -- championed by the heirs of Alexander Hamilton -- is largely responsible.
His subject, Leonhardt writes, "is central to what is arguably the single most important question facing the country today: How can our economy grow more quickly, more sustainably and more equitably than it has been growing, both to maintain the United States' position as the world's pre-eminent power and to improve the lives of its citizens?"
For Lind, a co-founder of the New American Foundation, there have historically been two camps on this question: the Jeffersonians, who have favored smallness and competition among private citizens and firms, and the Hamiltonians, who have called for decisive action by larger organizations from the federal government to corporations. The Hamiltonian developmental tradition is largely responsible for the positive aspects of the American economy, Lind contends, while the Jeffersonian "producerist" school has created its weaknesses.
Times columnist David Brooks weighed in yesterday, praising Land of Promise as "illuminating" but also arguing that Lind has unjustly morphed Hamiltonianism into modern liberalism.
It is the latter, Brooks contends -- encompassing the early 20th century progressives, FDR and the New Deal, LBJ and the Great Society -- that is responsible for the devolution of the public sector from a Hamiltonian state investing in long-term innovation to one that champions government planning, short-term "job creation" measures and dependence-inducing entitlements.
"Americans have been corrupted by the allure of debt, sacrificing future development for the sake of present spending and tax cuts," he writes. "In each case, a good impulse was taken to excess."
Perhaps. But at the core of this devolution is, in Brooks' view, the decades-long disintegration of trust in government, and herein lies his problem.
Brooks believes that distrust can be explained by modern liberalism's "excess": turning a limited state into an "omnidirectional and fiscally unsustainable" one. But what about that obsession with tax cuts -- which no doubt has some role to play in our fiscal crisis -- or the sharply anti-government views that inspired the Tea Party? What about the issue of race? Political polarization?
Or, for that matter, the economic transformations that brought about the decline of manufacturing and the rise of a service-based economy? Those forces placed increased demands on the government to fund education, infrastructure and research into science and technology. Meanwhile, the emergence of consumer culture, in the telling of the late sociologist Daniel Bell, heightened American individualism and corroded the "moral bonds" that held society together.
Many factors have played into today's complex political environment. But the tensions between Hamiltonian and Jeffersonian approaches, in Lind's view, are not exclusively conservative or liberal; both sides have their own Jeffersonian demons to battle, though they are surely more of a driving force for today's Right. And while Leonhardt takes Lind to task for neglecting education and culture in the production of America's exceptional wealth, he says Lind has a "strong case" to make with direct relevance today. Leonhardt writes:
The major problems facing the United States today, he argues, are ones that demand Hamiltonian solutions. True innovation, of the kind that lifts living standards for the masses, cannot come from lone inventors. It requires resources that only large organizations have. It also requires skilled people, be they well-educated natives or immigrants admitted because of the skills they can bring.
As the recovery continues its laggard pace and political gridlock over short-term measures endures, a debate over American economic policy that focuses on innovation and long-term growth is a welcome shift.
For his part, Brooks is asking some of the right questions:
Does government encourage long-term innovation or leave behind long-term debt for short-term expenditure? Does government nurture an enterprising citizenry, or a secure but less energetic one? If the U.S. doesn't modernize its governing institutions, the nation will stagnate. The ghost of Hamilton will be displeased.
The evidence in support of a robust government role in driving technological innovation, in partnership with the private sector, is a good place to start this debate.