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Intellectual Amnesia and the American Way

Intellectual Amnesia and the American Way

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Published by John M. Watkins
I'm a bit tired of people telling me that laissez-faire capitalism is “the American Way,” when I know it to be a cheap foreign knock-off.
I'm a bit tired of people telling me that laissez-faire capitalism is “the American Way,” when I know it to be a cheap foreign knock-off.

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Published by: John M. Watkins on Jul 13, 2011
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IntellectualAmnesia andThe American Way
by John MacBeath Watkins
David Brooks claimed in a July 12 column that "The world economy is a complex, unknowableorganism," and that all who think they've found the "magic lever" that will make the economy perform better are wrong.Paul Krugman replied in a post the same day on his blog, maintaining that "realizing thatthere’s a lot you can do to reverse a short-term slump isn’t magical thinking — it’s what basicmacroeconomics, what we learned through hard thinking and hard experience, tells us. Rejecting allthat may sound judicious, but it’s actually an act of intellectual amnesia."He does agree with Brooks that there is little the government can do to improve long-termgrowth.I suspect that both men are wrong. Brooks certainly is; economists ranging from MiltonFriedman to, well, Paul Krugman, agree that when the country is not in a liquidity trap, monetary policy can stimulate the economy. History demonstrates that they are right.But what about long-term growth? I maintain that a very old idea, originally called “theAmerican Way," points us to the answer. It is fashionable to attribute superhuman intellectual powers tothe founders of this country, so let me say that I'm advocating an economic plan endorsed by such
giants as Alexander Hamilton, Daniel Webster and John Quincy Adams. I would prefer to conceal thefact that was also supported by James Buchanan, the worst president this country has ever had, butyou'd probably find that out anyway. His defects as a president had nothing to do with the AmericanWay, in any case.The American Way (sometimes called the American System) featured government projects for roads and canals to make commerce possible between distant points, a national bank so that the countrywould have one common currency, high tariffs to protect American industry, and a sufficient standingarmy and navy to protect American interests as far away as, for example, Tripoli, where the Barbary pirates felt free to capture American ships.From
The Senate, 1789-1989: Classic Speeches, 1830-1993
, by Robert Byrd, we have thisdescription:Henry Clay's "American System," devised in the burst of nationalism thatfollowed the War of 1812, remains one of the most historically significant examples of agovernment-sponsored program to harmonize and balance the nation's agriculture,commerce, and industry. This "System" consisted of three mutually reenforcing parts: atariff to protect and promote American industry; a national bank to foster commerce;and federal subsidies for roads, canals, and other "internal improvements" to develop profitable markets for agriculture. Funds for these subsidies would be obtained fromtariffs and sales of public lands. Clay argued that a vigorously maintained system of sectional economic interdependence would eliminate the chance of renewedsubservience to the free-trade, laissez-faire "British System." In the years from 1816 to1828, Congress enacted programs supporting each of the American System's major elements. After the 1829 inauguration of President Andrew Jackson's administration,with its emphasis on a limited role for the federal government and sectional autonomy,the American System became the focus of anti-Jackson opposition that coalesced intothe new Whig party under the leadership of Henry Clay. Now, I'm a bit tired of people telling me that laissez-faire capitalism
“the American Way,”when I know it to be a cheap foreign knock-off. I'm not that enthusiastic about the high tariffs, whichin my humble opinion would be inflationary, but they were the main way the government was paid for at the time. And one nice thing about the American Way was that it did recognize that government hadto be paid for, and should be expected to deliver value for money. Those who have told us government
doesn't work seem intent on proving that it doesn't through spending that just isn't a good idea – likewars that aren't paid for and aren't necessary.The World Economic Report has published a study showing America twenty-third in terms of infrastructure quality, with our roads, airports, railroads and port facilities inferior to those in northernEurope.And what are our competitors doing? When my brother moved to China in the early 1990s, thecountry had almost no expressways. Now they have about 35,000 miles of them. In the same time, our freeway miles have increased from about 46,000 miles to 48,000 miles.A January 22, 2009 New York Times article tells us::"The combined national, provincial and local spending for economic stimulus promises tochange the face of China, giving the country a world-class infrastructure for moving goodsand people quickly, cheaply and reliably across great distances."How does that relate to our history? In 1919, Dwight Eisenhower participated in theTranscontinental Motor Convoy, spending 62 days crossing the country, and in the process having torepair 88 bridges. Most of the roads were unpaved, which may help explain why the trucks kept breaking down and crashing.It has been said that in war, amateurs study tactics, professionals study logistics. Eisenhower knew logistics very well, and knew that for the economy to function efficiently, it needed roads thatwould permit good logistics. He ramped up infrastructure spending, and signed what he regarded as thehighest accomplishment of his presidency, the Federal Aid Highway Act of 1956. By 1959, we werespending 2.41 percent of GDP on transportation. By 1999, our spending was down to 1.64 percent, andthe federal gas tax is still, in 2011, what it was in 1993 – 18.4 cents per gallon. Now, China is doing what Eisenhower did.

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