Business
Time for An American School 2.0
Time for An American School 2.0
By: Gerald Lee đť•Ź | 04/04/2024
Consider donating to support AF Post
Modern conservatism and libertarianism have been characterized by an almost, and sometimes actual, cult-like adherence to several very rigid ideological tenets, principle among them a religious commitment to a policy of free international trade, in particular of agricultural and manufactured goods.
An example that these Ayn Rand aficionados quite often use is that when it comes to the automobile industry, America does not have to worry about Japan and China taking our lunch, largely because we do have a thriving automobile industry. The only major change in recent decades is that the process of producing automobiles starts in a cornfield out in the Midwest, where farmers grow corn for export to the Western Pacific which in turn affords America the ability to import automobiles. There are two glaring deficits to this argument:
For one, this implicitly assumes that all comparative advantages are created equal, an argument that sounds ridiculous on its surface so much so that a ninety IQ factory worker could tell you is beyond silly. As the Japanese understood in the 1950s when they decided to nurture their auto industry with tariffs, the spillover effects of protecting and nurturing a complex, capital-intensive industrial sector rather than a relatively simple primary/extractive sector is simply incomparable. Simply committing to produce most if not all of the different components of an automobile within one’s borders inevitably causes the emergence of dozens, sometimes hundreds, of peripheral sectors that quite often have applications in other core industrial sectors.
This protectionism triggers a virtuous economic cycle that compounds over time, transforming the nations that selfishly protect their industry into economic powerhouses, as Japan was able to do in just three decades. Ask any of your grandparents how Japanese manufactures were viewed during the 1950s and 60s and you will be shocked by how intensely they were dismissed. Rest assured, not only did the four Asian Tigers (Korea, Taiwan, Hong Kong, Singapore) follow this same pattern of accelerated development, but so too will China as she continues to upgrade her economy into the stuff of science fiction.
Secondly, the numbers simply do not add up. As of 2021, America recorded a staggering $1.1 TRILLION trade deficit with the rest of the world and $355 billion with China alone.
In addition to sending the Western Pacific our crops, our raw materials, and our capital equipment that will inevitably be copy-and-pasted by unscrupulous industrialists and governments on the other side of the Pacific with no compensation for our inventors whatsoever, we are also accumulating massive external debts to consume imported manufactured goods that, quite frankly, should be made by our own workers’ hands. Yes, in the short run as we hypothetically regrow our collective spine and decide to rebuild our manufacturing base, we as consumers will probably have to endure lower quality and more expensive goods for a while, just as the Japanese had to when they were nursing their manufacturing prowess, but such a sacrifice will be something that our children and grandchildren will fondly remember us for.
Amusingly enough, even the most vocal regular conservative, whose actions over the decades have done bugger all to conserve anything of worth, has no idea that many of the Founding Fathers were in fact massive advocates of influencing the general direction of the American economy.
This inconvenient historical fact is not very well noticed largely because the Founding Fathers, namely Alexander Hamilton and John Adams but many others as well, were able to “macromanage”, if you will, the American economy without breaking the bank. This was largely done through directive public policy that steered the American economy towards focusing on industry and running trade surpluses on a consistent basis, especially in the realm of finished manufactured goods. Indeed, as Alexander Hamilton pointed out, a nation could not consider itself substantively independent if it had to rely on the industry of other nations to produce the goods its people needed on a daily basis, something the pandemic of 2020 resoundingly demonstrated to anyone with more than a handful of brain cells.
This school of thought was called the American School or American System. The American School of Thought believes that the government, besides protecting life, liberty, and property, is also responsible for ensuring that industry, especially nascent ones, were adequately protected, at least until they became competitive with the best the rest of the world had to offer. The American School was also very much in favor of investing in infrastructure, in particular transportation infrastructure, in order to increase the efficiency and competitiveness of American industry in a way that could not have been done by private companies on their own, or at least not nearly as early.
A great example was the Transcontinental Railroad that was completed in 1869 with massive government backing. The religiously free market oriented will make the argument that the free market had deemed the capital investment too early, as evidenced by the largely private venture that was the Great Northern Railway whose mainline was completed only during the closing decade of the nineteenth century. While that is indeed a cogent argument if one’s main priority was profit maximization, something that private companies are understandably geared towards, this makes a lot less sense when one’s main priority is national development, which is what a competent and just government apparatus ought to focus on in order to properly serve its people, some of the more dubious aspects of the railroad’s compensation structure notwithstanding. Such is the division of labor between the private and public sector. In fact, this eminently reasonable approach to economic policy had been the basis of how America approached economic affairs from its inception all the way to the end of the Second European Civil War in 1945.
In conclusion, it is high time that America not just resurrect the American School of economic thought, but add new layers to it for the twenty-first century such as industrial policy similar to what the best-performing economies of the Western Pacific employed to grow and develop faster than any free market regime could dream of as well as policies to improve the human resource endowment of this country, something that has been severely lacking in the last few generations for reasons obvious to readers of this publication.
It is time for the American School 2.0.
An example that these Ayn Rand aficionados quite often use is that when it comes to the automobile industry, America does not have to worry about Japan and China taking our lunch, largely because we do have a thriving automobile industry. The only major change in recent decades is that the process of producing automobiles starts in a cornfield out in the Midwest, where farmers grow corn for export to the Western Pacific which in turn affords America the ability to import automobiles. There are two glaring deficits to this argument:
For one, this implicitly assumes that all comparative advantages are created equal, an argument that sounds ridiculous on its surface so much so that a ninety IQ factory worker could tell you is beyond silly. As the Japanese understood in the 1950s when they decided to nurture their auto industry with tariffs, the spillover effects of protecting and nurturing a complex, capital-intensive industrial sector rather than a relatively simple primary/extractive sector is simply incomparable. Simply committing to produce most if not all of the different components of an automobile within one’s borders inevitably causes the emergence of dozens, sometimes hundreds, of peripheral sectors that quite often have applications in other core industrial sectors.
This protectionism triggers a virtuous economic cycle that compounds over time, transforming the nations that selfishly protect their industry into economic powerhouses, as Japan was able to do in just three decades. Ask any of your grandparents how Japanese manufactures were viewed during the 1950s and 60s and you will be shocked by how intensely they were dismissed. Rest assured, not only did the four Asian Tigers (Korea, Taiwan, Hong Kong, Singapore) follow this same pattern of accelerated development, but so too will China as she continues to upgrade her economy into the stuff of science fiction.
Secondly, the numbers simply do not add up. As of 2021, America recorded a staggering $1.1 TRILLION trade deficit with the rest of the world and $355 billion with China alone.
In addition to sending the Western Pacific our crops, our raw materials, and our capital equipment that will inevitably be copy-and-pasted by unscrupulous industrialists and governments on the other side of the Pacific with no compensation for our inventors whatsoever, we are also accumulating massive external debts to consume imported manufactured goods that, quite frankly, should be made by our own workers’ hands. Yes, in the short run as we hypothetically regrow our collective spine and decide to rebuild our manufacturing base, we as consumers will probably have to endure lower quality and more expensive goods for a while, just as the Japanese had to when they were nursing their manufacturing prowess, but such a sacrifice will be something that our children and grandchildren will fondly remember us for.
Amusingly enough, even the most vocal regular conservative, whose actions over the decades have done bugger all to conserve anything of worth, has no idea that many of the Founding Fathers were in fact massive advocates of influencing the general direction of the American economy.
This inconvenient historical fact is not very well noticed largely because the Founding Fathers, namely Alexander Hamilton and John Adams but many others as well, were able to “macromanage”, if you will, the American economy without breaking the bank. This was largely done through directive public policy that steered the American economy towards focusing on industry and running trade surpluses on a consistent basis, especially in the realm of finished manufactured goods. Indeed, as Alexander Hamilton pointed out, a nation could not consider itself substantively independent if it had to rely on the industry of other nations to produce the goods its people needed on a daily basis, something the pandemic of 2020 resoundingly demonstrated to anyone with more than a handful of brain cells.
This school of thought was called the American School or American System. The American School of Thought believes that the government, besides protecting life, liberty, and property, is also responsible for ensuring that industry, especially nascent ones, were adequately protected, at least until they became competitive with the best the rest of the world had to offer. The American School was also very much in favor of investing in infrastructure, in particular transportation infrastructure, in order to increase the efficiency and competitiveness of American industry in a way that could not have been done by private companies on their own, or at least not nearly as early.
A great example was the Transcontinental Railroad that was completed in 1869 with massive government backing. The religiously free market oriented will make the argument that the free market had deemed the capital investment too early, as evidenced by the largely private venture that was the Great Northern Railway whose mainline was completed only during the closing decade of the nineteenth century. While that is indeed a cogent argument if one’s main priority was profit maximization, something that private companies are understandably geared towards, this makes a lot less sense when one’s main priority is national development, which is what a competent and just government apparatus ought to focus on in order to properly serve its people, some of the more dubious aspects of the railroad’s compensation structure notwithstanding. Such is the division of labor between the private and public sector. In fact, this eminently reasonable approach to economic policy had been the basis of how America approached economic affairs from its inception all the way to the end of the Second European Civil War in 1945.
In conclusion, it is high time that America not just resurrect the American School of economic thought, but add new layers to it for the twenty-first century such as industrial policy similar to what the best-performing economies of the Western Pacific employed to grow and develop faster than any free market regime could dream of as well as policies to improve the human resource endowment of this country, something that has been severely lacking in the last few generations for reasons obvious to readers of this publication.
It is time for the American School 2.0.