Whose Alexander Hamilton?

While I am on the subject of industrial policy, David Brooks' column today in NYT reminds me that  Alexander Hamilton, one of the giants of American history, was also a great believer and promoter of industrial policy.  But Brooks gets this wrong:

These days there seem to be four schools of political economic thought. First, there are the limited government conservatives, who think taxes should be low and the state should be as small as possible. Second, there are the Hamiltonians, who believe in free market capitalism but think government should help people get the tools they need to compete in it.   

Third, there are the mainstream liberals, who think government should intervene in small ways throughout the economy to soften the effects of creative destruction. Fourth, there are the populists, who believe the benefits of the global economy are going to the rich and we need to fundamentally rewrite the rules.

If you are reading this column, you're keeping company with somebody in group No. 2. We Hamiltonians disagree with the limited government conservatives because, on its own, the market is failing to supply enough human capital....

We Hamiltonians disagree with the third group, the mainstream liberals, because their programs haven't worked out. Retraining programs for displaced workers have flopped. Tax code changes to reduce outsourcing are symbolic. Federal jobs programs aren't effective. Moreover, the high taxes you need to pay for these programs sap the economy. There's now a pile of evidence showing that higher taxes mean reduced working hours. In the face of Chinese and Indian competition, we don't need Americans working less.

We Hamiltonians disagree with the populists because we don't find their storyline persuasive. The populists argue that global trade is creating a race to the bottom that is leading to stagnant wages and vast inequality. But when you look at the details, you find that most inequality is caused by a rising education premium, by changes in household and family structure, by the fact that the rich now work longer hours than the less rich and by new salary structures that are more tied to individual performance. None of this can be addressed by changing global trade rules.

The global economy radically decreased poverty and increased living standards. It's crazy to upend this complex system to return to some nostalgic vision of a 1950s industrial wonderland.

When it comes to what Hamiltonians are actually for, two big themes stand out. First, the overall economy has to remain dynamic....

The second big theme is a human capital agenda. No one policy can increase the quality of human capital, but a lifelong portfolio of policies can make a difference.

Whatever you may think of the human capital agenda, Brooks' take on Hamilton does not do justice to the author of the famous Report on Manufactures.  Those who look for a robust case for industrial policy and for possible ways of implementing it can still profitably turn to this classic.

Comments

[paine]

DR

i think he means
the rubinomics behind
the present day
hamilton project

not the hoary thinkitry produced in the
constituted
republic's year zero

in fact that brilliant elitest bastard
would prolly
have this nyt pollywog
fried
for his dogs' breakfast

[Roy Haddad]

The market is failing to supply enough human capital? Where are we?

[Jim]

There is also Douglas Irwin's "The Aftermath of Hamilton's Report on Manufactures," Journal of Economic History, September 2004.

Abstract: Alexander Hamilton’s Report on Manufactures (1791) is a classic document in the history of U.S. economic policy, but its fate in Congress is not well known. It is commonly believed that the report was never implemented. Although Hamilton’s proposals for bounties (subsidies) failed to receive support, virtually every tariff recommendation put forward in the report was adopted by Congress in early 1792. These tariffs were not highly protectionist duties because Hamilton feared discouraging imports, which were the critical tax base on which he planned to fund the public debt. Indeed, because Hamilton’s policy toward manufacturing was one of encouragement and not protection, those interests shifted their political support from the Federalists to the Jeffersonian Republicans during the 1790s.