Book Review: ‘The Next American Economy’ by Samuel Gregg

Elizabeth Warren. (Photo by Tom Williams/Getty Images.)

Former President Donald Trump and Democratic Sen. Elizabeth Warren appear as polar opposites, but in 2019 Tucker Carlson observed a similarity between the two on economic policy. After approvingly quoting a Warren economic plan on-air—“Politicians love to say they care about American jobs, but for decades those same politicians have cited ‘free market principles’ and refused to intervene in markets on behalf of American workers”—the Fox News host declared, “She sounds like Donald Trump at his best.”

This wasn’t a one-off. Much of the progressive left and “national conservative” right have spent the past few years coalescing around the idea that government should play a bigger role in America’s economy. They may differ on the precise nature of the interventions but generally favor “state-directed capitalism”—an agenda embracing protectionism, industrial policy, “pro-worker” initiatives, and a corporatism whereby governments can jawbone companies for taking the wrong political or social stances.

Rather than lament these ideas as braindead errors, Samuel Gregg takes seriously the best arguments for such proposals in his excellent new book, The Next American Economy. More importantly, the economics writer and much-affiliated think tanker recognizes that wittering on about “deadweight losses” or economic inefficiencies in state-directed capitalism isn’t enough to convince those tempted by the new zeitgeist.

Gregg begins by explaining just how stark the turn away from free markets has been in recent years. After the Soviet Union collapsed and industrial policy-laden Japan’s bubble burst in the 1990s, the idea that the state could plan or tilt the sectoral composition of an economy toward prosperity seemed utterly discredited. Free markets and global economic integration were seen not only as guarantors of prosperity but a means of creating binding interests to spread freedom, peace, and prosperity. 

Reality never lived up to the rhetoric, and Americans knew it. The country has had a long history of protectionist and interventionist impulses. Much U.S. policy remained riven with cronyism even during the high watermark for free markets of the 1990s. Then followed two decades of relatively stagnant growth. The 2008-09 financial crisis led to huge bailouts to the financial sector, and the pandemic shut down the global economy while exposing the vulnerabilities of international supply chains. All that, combined with China’s turn toward authoritarianism, have led millions to give economic interventionism another look.

Gregg doesn’t evaluate how much each factor contributed to altering the climate of ideas, but the results are undeniable. President Trump reached for tariffs that Joe Biden has largely maintained. Politicians have plotted industrial policies for silicon chips, steel, and renewable energy. Big Tech companies face antitrust assaults while corporations more broadly face adverse legislation or bullying. Some national conservatives say, explicitly, that government should be used to “reward friends and punish enemies.”

Gregg’s critique of this regression is bolstered by his willingness to cede ground where warranted. He admits that the “American policymakers and free marketers oversold the case for free trade from the 1980s onwards,” especially in suggesting economic liberalization would foster political and social liberalization overseas. He accepts that no country engages in full unilateral free trade and that each delivers some industrial policy, not least on national security grounds. He even contends that the link between free trade and peace is not that strong, and that trade’s biggest historical intellectual champions, including Adam Smith, understood this. China, he believes, represents a real problem.

Acknowledging legitimate grievances makes his litany of evidence against the economic use of tariffs, subsidies, privileges and regulations all the more powerful. He provides extensive evidence of protectionist follies and the corruption associated with a politicized business environment. He capably skewers the idea that the Japanese and Chinese experiences with industrial policy were a success. These ventures, as well as America’s own history, confirm that industrial policies often deliver waste while emboldening cronyism. “National security” exemptions are routinely abused by politicians.

Detailing such evidence is necessary but not sufficient to convince those for whom state-led efforts sound sensible. Many national conservatives and progressives explicitly spurn economic efficiency as their goal: A reduction in aggregate gross domestic product is acceptable to them if the primary goal is, say, incubating a domestic industry, or saving certain jobs, or greening the economy, or reviving manufacturing, or avoiding subservience from other countries, or even an intangible idea like spreading dignity.

This makes critiquing government intervention a challenge. Throwing government money at an industry tends to help said industry—at least before the inefficiency of reduced competitive pressure kicks in—and that first-order effect is held up as proof of the policy’s wisdom. Worst, the movable feast of goals ultimately gets justified by appealing to a never fully defined umbrella term of the “national interest” or “common good.” 

Gregg understands that the way to reach the hearts and minds of conservatives—and this book seems written for the right much more than progressives—is to outline why interventionism fails according to a more grounded conception of the “common good” and to reclaim the “national interest” moniker for free and open markets. 

The positive national vision he delineates is of the U.S. as a “commercial republic”—which is pluralistic and allows markets, rather than raw political power, to adjudicate disputes. This, he explains, “is an ideal of a republican form of political community that integrates a strong case for economic liberty into a vision of America as a free and commercial oriented sovereign nation in a world in which other sovereign nations are pursuing what they regard as their national interests.”

“State capitalism” cannot possibly claim to deliver on the common good for Americans, Gregg explains, because it “promotes particular businesses over others, allows well-organized interest groups to engage in rent-seeking, makes American consumers pay more for often sub-standard products, and weakens America’s long-term competitiveness.” In contrast, “an economy of entrepreneurship, competition, and dynamic trade” isn’t good just because of its economic benefits on these fronts, but because its values represent “distinctly American ideals.” 

Gregg harnesses the visions of some of the Founding Fathers, writings from the Federalist Papers, the observations of De Tocqueville and the more contemporary analysis of Nobel Prize-winning economist Ned Phelps to show that the U.S. has a rich and exceptional history of entrepreneurialism, with strong cultural commitments to free enterprise and innovation. 

“The case for free markets will lose if it remains narrowly economic in its content and emphasis,” Gregg concludes. “Instead, that case needs to be wrapped into a broader story about America. For if American defenders of markets can only offer an argument for ‘more stuff produced more efficiently for more people,’ if they allow free markets to become associated with borderless utopias, or if they trivialize the very real bonds that many Americans have to their country and communities, millions of Americans will not listen to them—no matter how compelling the economics.” 

Gregg’s book serves as a direct rebuke to national conservative attempts to rewrite the early history of this country as one built on protectionism and state power, and is incredibly useful to anyone who wants to understand and counter the vision proffered by Warren and her de facto allies on the right. 

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