Greenspan and Wooldridge Argue the American Love and Embrace of Capitalism Is the Key...

Il Quarto Stato

The world as a whole is much richer than it was three centuries ago. Back then, at the end of the long era since the invention of agriculture, the typical human lived on two dollars a day, had a life expectancy at birth of 25, and was protein deprived in utero. Mothers worldwide no longer run a one-in-six chance of dying in childbed. Literacy in no longer a rare accomplishment. Less than one in six humans worldwide live like all of our pre-industrial ancestors—and even those less-than-one-in-six likely have some access to the village smartphone.

Within the world, the Global North—those economies that have managed to fully grasp the potential of science and technology—are much richer still. Within the Gobal North, the New World settler economies with truly abundant natural resources for their populations (in large part because it was made clear to the People of the Seven Council Fires and other indigenous nations that the land ws no longer theirs) are richer still. And richest of all, still, is the United States of America. For nearly two centuries its unique dynamic of economic growth has made America, in the words Leon Trotsky used after his brief residence in New York City: "the furnace where the future is being forged."

Alan Greenspan and Adrian Wooldridge's Capitalism in America: A History argues that it is the American love and embrace of capitalism, the resulting entrepreneurial business culture, and the creative destruction that has brought that has given America its special, unique edge in economic wealth. In America, successful entrepreneurs, innovators, organizers, and promoters have become not just well-off, but heroes. They are who we want to be. As John Steinbeck once remarked, here in America "we didn’t have any self-admitted proletarians. Everyone was a temporarily embarrassed capitalist..."

They have become our heroes so even though, as Greensopan and Wooldridge say, "entrepreneurs are seldom the easiest of heroes". They are driven by interior psychological demons, and this makes them at best eccentric, at worst cruel and dangerous, and always hard to live with: "Isaac Singer was guilty of cheating his partner... choking one of his wives intro unconsciousness... polygamy... child neglect.... Henry Ford launched a succession of ambitious schemes... including eliminating cows, which he could not abide.... Thomas Watson turned IBM into a personality cult, complete with company songs about 'our friend and guiding hand'... whose 'courage none can stem'...." (424).

More important, perhaps, they are "almost always guilty of what might be termed imperialism of the soul... prone to... the 'madness of great men'..." It is their way or the highway. Henry Ford was going to mass-produce cars, never mind that there were not yet enough miles of road for mass-produced cars to drive on. Henry Ford was going to produce the cheapest possible mass-produced car by making only one model of car in one color—black—never mind that a civilization that can require more than 700 kinds of barbed wire craves variety. The first bet paid off: Ford Motor Company became the dominant industrial corporation of the 1920s. The second did not: Ford lost its place in the 1930s to Alfred Sloan's General Motors. Nothing could cause Ford to swerve aside from either.

Are Greenspan and Wooldridge correct in this reading of American economic history? Greenspan's career has certainly predisposed him to make this argument, from his days as a professional-quality jazz musician and close Ayn Rand disciple through his Wall Street career; his public service as Chair of the President's Council of Economic Advisors, of the Social Security Reform Commission, and of the Federal Reserve; and now his role as Republican elder statesman and plus-one of NBC's Andrea Mitchell.

Alan Greenspan I know slightly and know of very well. He has been an extremely wise and thoughtful teacher, albeit at second hand. As a disciple of Ayn Rand, he has always seen great potential value in acts of heroic economic leadership by creative industrial visionaries, and in the strong desirability of arranging society to assist such visionaries. He was the extremely-skillful and extremely-lucky steward—the closest thing to a central planner—of the American economy from 1987 to 2015 as Chair of the Federal Reserve. During Greenspan's tenure, there were six times when I though he had made significant policy mistakes. Five of those six times it was I that was mistaken. (The sixth was his refusal to push for higher loan standards and reserve requirements during the housing bubble of the mid-2000s.)

He is right in seeing the potential for heroic economic leadership. Alan Greenspan's own greatest act of economic leadership was truly heroid. It was the last time any Republican policymaker was willing to reach across the aisle. It was his cooperation with President Clinton in 1993-1994 in creating the U.S. government budget surpluses of the late 1990s, the surpluses that helped power that high-investment high-productivity half-decade—that was the last time the U.S. economy was firing on all cylinders.

Alas, no one can be heroic all the time! We are all, sometimes, not strong and not brave. When the minority government of George W. Bush set out to undo his work in 2001, Greenspan grumblied at private breakfasts with then-Treasury Secretary Paul O'Neill: "'Without the triggers, that tax cut is irreponsible fiscal policy', he said in his deepest funereal tone..." He was right: it was. And the American economy suffered badly from it. But he stayed quiet in public.

Nevertheless, Alan Greenspan is always very much worth listening to: he is wise, he is thoughtful, he is reality-based, he thinks very differently than I do, and he is patriotric—a citizen of the United States of America, a citizen of the Invisible College of thinkers seeking after truth, and a citizen of the world.

Adrian Wooldridge I do not know—save as the coauthor of a book I dimly remember as execrable: the 2004 The Right Nation: Why America Is Different. Rereading it I was struck by: "imagine Dennis Hastert at one end of the seesaw and Nancy Pelosi on the other end, and you have some idea about which party is sitting with its legs dangling in the air..." Praise for Dennis Hastert and his constituents as salt-of-the-earth real Americans: "growth... family... resolutely middle class... cheerfully middle American... middle-class Illinois...". Mockery of "aristocratic San Francisco", of Nancy Pelosi and her constituents as parasitic weirdos.

Not a whisper about how San Francisco Bay was then—as it is now—the engine of the greatest surge of techno-economic innovation since Bessemer experimented with steel. Barely a word about Hastertland's rural towns losing economic roles, self-satisfied elites who could not be bothered to lend a hand, unfriendliness to people who look different, large slices of the population living in the trailer parks, and the gathering meth epidemic.

But while it is no surprise that this book with this theme emerges from these authors, they are, I think, broadly correct in their argument.

Humans have always been creative, and some of us have been truly heroic visionaries. And they have accomplished great works and wrought great things in every era. Who today would dare claim to be a better politician-statesman than the Emperors Augustus and Gaozu? Who today would dare claim to be a better sculptor than Michaelangelo or Praxiteles? Who today would claim to be a better novelist than Jane Austen or the unknown author of The Epic of Gilgamesh? Yet America has focused its energies on making a society welcome to enterprise and to entrepreneurs, and the result is that while we do not exceed our predecessors or our contemporaries in statesmanship or sculpture or literature, we do vastly exceed them in wealth.

The argument is greatly strengthened because it is merely the scaffolding for what is a very lively and engaging work of history. Organizations like Hamilton's First National Bank, the New York Central Railroad, Raytheon, General Electric, Kodak, Xerox, the National Science Foundation, and J.P. Morgan and Company. People like J.P. Morgan (the elder), Vannevar Bush, George Eastman, Andrew Carnegie, Dwight Eisenhower, and John Maynard Keynes. The large gap in innovation between the United States and old world powers like Britain, France, and Germany was built on the ground as entrepreneur after entrepreneur and business after business took advantage of the framework of infrastructure and education (and, from 1945-2007, a remarkable amount of economic stability) to run down the learning and the economies-of-scale curve to attain mammoth profits for entrepreneurs, executives, and financiers nad low prices for workers and consumers. As they say, the gap between us and Americans of the day in which "isolated and careworn, the best the average American could hope for was, in Abraham Lincoln's phrase, 'a clean bed without any snakes in it'..." is huge.

The narrative does strike me—not unexpectedly given the authors—as somewhat one-sided. For example, Greenspan and Wooldridge state: "Great companies can only succeed by delivering huge benefits to consumers—by slashing prices as Ford did, increasing choice as General Motors did, or reinventing basic products, as Tesla is doing.... At the same time, companies also succeed by running roughshod over their competitors..." Those competitors are often well-established and politically-powerful, hence many societies put in blockages to protect established firms. The U.S., historically, has had few of these. This has been one of our edges.

So far, so good. But there are two other ways companies succeed: by not running roughshod over but cozying up to their competitors, and by using their social power to discourage the emergence and growth of new industries that could render them obsolete. Carnegie Steel ran roughshod over its competitors and delivered high-quality low-priced steel to users in the late 19th century. Carnegie Steel was then bought out by J.P. Morgan and Company and merged into U.S. Steel at the start of the 20th century. U.S. Steel then charged monopoly prices became technologically laggard. U.S. Steel's competitors did not undercut its prices by much and did not dare take market share away from it very fast, lest they awaken a sleeping giant and fill it with terrible resolve. AT&T two generations ago worked and Koch Industries today works very hard to try to slow the emergence of innovative telecommunications technologies then and clean carbon energy technologies now. But Greenspan and Wooldridge do not see these kinds of what Will Baumol would have called not just unproductive but destructive entrepreneurship. This is, I think, a substantial blind spot in their narrative.

And, of course, a wealthy society is not necessarily a good society or even a prosperous society. "No society can surely be flourishing and happy", Adam Smith wrote in 1776, "of which the far greater part of the members are poor and miserable". In a world as potentially rich and productive as ours, the bar for escaping poverty is much higher than merely being confident that you know where your 2000-calories-plus-essential-nutrients will come from next year, and they will not cost more than 1/3 of your income. Economic growth increases the prosperity of the society only when the growth is equitable.

Here I think we find a second large blind spot in American Capitalism's narrative. They attribute what they see as declining economic dynamism in America to increasing resistance to the pro-entrepreneurial culture of American capitalism. And they attribute increasing resistance to three "destructive" faces of Schumpeterian entrepreneurial creative destruction:

  1. That "the costs of creative destruction are more obvious than the benefits.... It's easier to see the unemployed silk workers put out of business by the silk-making factories than the millions of silk stockings..."
  2. That "capitalism creates its own gravediggers in the form of comfortable class of intellectuals and politicians.... it has always been easier to make the case for ending injustice or raising minimum wages than it is for economic dynamism. And technological innovation... giving anybody with a camera or an inrtrnet account the ability to draw attention to any example of 'destruction'..."
  3. That "creative destruction can... be all destruction and no creation... in the world of money.... 1907... speculators... despositors withdrew money from any bank with even a whiff of connection with the speculators... panic spread..."

As for the third, game and set to the critics. Finance needs stricter regulation, tighter loan standards, and higher capital requirements especially in any era of enthusiasm, rational or irrational. Alan Greenspan's belief that benign neglect of the housing bubble ran little risk of setting the stage for economic catastrophe—a belief that I half-shared at the time—was wrong. This resistance is entirely proper and appropriate.

As for the second, society cannot be prosperous without an equitable distribution of income. Milton Friedman's Negative Income Tax—what is now called Universal Basic Income—is political unsustainable, for people want not to clip coupons but to be rewarded for their contributions. Thus if the market will not generate an equitable income distribution, the government needs to tweak it until it does so. The government can tweak via wage subsidies, but when labor demand is inelastic such policies boost profits and not worker incomes. The government can set minimum wages, but when labor demand is elastic such policies discourage employment. Good policy needs a balance: wage subsidies via the Earned Income Tax Credit, but also minimum wage hikes as well. For Gfreenspan and Wooldridge to claim that it is the "gravediggers of capitalism" who call for "raising minimum wages" tells me that they do not see the world as it is. So here too I award game and set to the resistance.

And as for the first, I look around San Francisco Bay and I see universal agreement that the benefits of creative destruction are greater than the costs—that, morever, they are so much greater that we can afford to take powerful and active policy steps to mitigate the costs, and so we need to think hard about what those steps might be. And I look to Seattle, Denver, Austin, Chicago, Raleigh-Durham, Philadelphia. New York, Boston, and elsewhere, and I see the same. Moreover, I see no decline in economic dynamism. So award game, set, and match to the resistance here.

Where is there a loss of economic dynamism in America today? Where is there an absence of upward mobility, an unwarranted fear of immigrants, an unwarranted fear of Muslims, suspicion of kneeling football players, suspicion of education, declining public health, a need to keep women in their place?

Look at the map, and see a few hot spots: places in the upper midwest where imports from China and the coming of robots to the factory floor have caused manufacturing employment declines like those the move of textiles to the Carolinas in the 1950s and 1960s caused to manufacturing employment in Boston, Lowell, and Fall River, Massachusetts back then.

Look at the map, and see much larger areas on which the Curse of Barry Goldwater has fallen. Goldwater sought to take advantage of the civil rights era by transforming the Republican Party into a place where those who feared and hated and did not want to interact with African-Americans could feel at home. In so doing, her and his successors transformed the Republican Party from an organization devoted to the interests of those who were or hoped to be wealthy and looked forward to taking advantage of the "creative" part to those who thought they had something to lose in the "destructive" part of creative destruction. As Truman's Secretary of State Dean Acheson correctly wrote in the 1950s, the first Republican Party of wealth and enterprise had a great deal to offer in helping to govern America. But the second Republican Party of standing athwart history yelling "Stop!" does not.

That, I think, is our big problem. It is a very different problem then Greenspan and Wooldridge see, with their fear of the congerie of those who see jobs destroyed but not jobs created, comfortable liberal intellectuals, comfortable liberal politicians, gravediggers of capitalism, crusaders against injustice, advocates (like me) of raising minimum wages, people with cameras, and people with internet accounts. Many of those whom Greenspan and Wooldridge dismiss as the problem do, I think, see our world today more clearly than they do.

But I could be wrong. And that is one of the things that makes this book well worth reading. Alan Greenspan is wise, is trying his best to think things through, wants only the best, and thinks very differently than I do.

I am very pleased to welcome and endorse this contribution to our public sphere today.


Adam Smith (1776): Wealth of Nations: "What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged...

Wikipedia: Koch Industries

Politics and Prose & GW: Alan Greenspan and Adrian Wooldridge: Capitalism in America: "Greenspan, in partnership with the celebrated Economist journalist and historian Adrian Wooldridge, tell the epic story of how America evolved from a patchwork of colonies into the mightiest economy in the world. The book unfolds a tale involving vast landscapes, titanic figures, triumphant innovation and breakthroughs, enlightenment ideals, and terrible moral failings...

John Steinbeck: A Primer on the '30s'

John Steinbeck: The 1930s: A Primer: "Except for the field organizers of strikes, who were pretty tough monkeys and devoted, most of the so-called Communists I met were middle-class, middle-aged people playing a game of dreams. I remember a woman in easy circumstances saying to another even more affluent: “After the revolution even we will have more, won’t we, dear?” Then there was another lover of proletarians who used to raise hell with Sunday picnickers on her property. I guess the trouble was that we didn’t have any self-admitted proletarians. Everyone was a temporarily embarrassed capitalist. Maybe the Communists so closely questioned by investigation committees were a danger to America, but the ones I knew--at least they claimed to be Communists--couldn’t have disrupted a Sunday-school picnic. Besides they were too busy fighting among themselves...

As published:

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