We (Americans) like to view a select group of less prosperous nations not with sympathy, but with self-satisfied scorn. We do so especially for nations that we consider an ideological opponent. Cuba is one, and we are right to be scornful of a nation that can’t get over their dependence upon a Soviet block that has long ceased to exist. North Korea is another, and their situation is even more dire, but for much the same reason. Since the end of WW2, they have depended upon aid from fellow communist nations who were willing to prop up their failed economy. The only communist nation left to help is China – which itself has turned replaced communism with capitalism, but kept a communist false front. Regarding our own delusions, we have misinterpreted our past into a rosy free market creation story, a story as ridiculous as the most die hard communist tale. And no, I don’t think we are as badly off as either Cuba or North Korea, but we are as blind.
Our creation myth starts with colonists and founding fathers, but the economic components adds untrammeled free market capitalism, where success came from solely from competition, drive and effort. Even more nonsense is ladled on about how our freedom was created by our a constitutional democracy. Today’s spillage will be about the economy, and it is a follow-on to my George Bailey (Jimmy Stewart) posting a few days ago.
Let’s start with Robert Fulton.
Robert Fulton is maybe the second in the US Pantheon of inventors who moved us from being a backward agrarian nation to a first rate industrial power. The first was Eli Whitney who invented the cotton gin and was one of a number of early experimenters with the use of power tools to create and assemble manufactured goods – thus presaging standardization of parts, and the assembly line. Just as Whitney didn’t really “invent” standardized and interchangeable parts, so too, Fulton did not really “invent” the steamboat. Nonetheless, he did perfect a steamboat that was designed for use on the Hudson. But what he also did was something that was far more important for his success, he obtained a legal monopoly on steamboat use (for the Hudson) – a monopoly that lasted from 1807 to 1824 and that freed him up to perfect and fund his business without worrying about competition.
The 19th century featured a series of technological improvements, highlighting the creativity of American mechanics (many of whom had been English, French or German mechanics till immigration brought them to our shores). But much more important than our inventiveness, was the mere fact of having to fill up an empty country. *
Starting with canals, and moving to railroads, we needed ways to move goods and people to and from places that, until the canals came, were sparsely settled and where existence was hand to mouth. The canal era fostered the growth of cash crops like grain; it also fostered settlement. The railroad era similarly fostered settlement, and made irrelevant former market towns that were bypassed. Railroads also required tons of steel, and more tons of coal, the mining of which itself increased the need for more steel and more coal.
Both canals and railroads required the acquisition of a right of way – generally sponsored or at least blessed by government. The state of NY built the Erie Canal – but even “privately” funded canals required a state charter (so a monopoly). Railroads were built entirely by private companies (as far as I can tell in my research), but just like with canals, they also required the award of a right of way – and for the transcontinental railroads, not only did Congress charter the Railroad, but it donated acres of extra land – used to fund some of the cost of building the new railroads. (It even purchased additional land from Mexico to provide space for a Southern railroad – the Gadsen purchase).
As noted in my prior post, rails needed steel and coal, and as development followed, the new towns needed more coal, wood, cement, whale oil, dry goods, whiskey etc. The growth that followed the building of the transcontinental railroads was astounding and unprecedented – yes, some aspects were unfortunate, but the building of our industrial capacity eventually made wide spread prosperity possible. (But, it was not until civil authorities began to protect workers with progressive legislation, and not until unions took hold, that long term prospects improved for the American factory worker.)
Oh, one more thing, protective tariffs ensured that it was American goods that were shipped across the continent into the new towns.
Cycles of boom and bust continued, ending with the Great Depression, which may not have been ended by Roosevelt’s New Deal,*** but the “free economy” didn’t end the depression either. In any case, it was not the markets – but federal programs which instilled a patience with the slow recovery, which however slow was now being watched by an administration that cared about the “little man.”
WW2 showed what massive government intervention could do. And despite what free market ideologues say, the government did a good – yes, we have price controls and rationing, but the end result of a partially planned economy was the reinvigoration of our manufacturing sector, and when the vets came home (many to attend college in the GI Bill) an era of unprecedented prosperity followed. (I am not implying that it was the programs alone, the times were uniquely suited for America – we were the only large power that was undamaged.
Somehow, after the 1940s the US seems to have forgotten our past. There was only one major national post war project – the Interstate Highway System,** and that one was completed nearly 40 years ago. At the same time, we resolved to eliminate tariffs.
Eliminating tariffs did make sense for foreign policy reasons. That is to say, it was useful to concede some market share to our war damaged overseas competitors. But we took the matter way too far. For example, our entire consumer electronics market was ceded to Japan – who probably dumped goods in the early years to push past American TVs and radios. The academic economists who made the case for open markets never factored in the loss of good jobs on real men and women. Then we have the more mundane products like furniture and shoes. These were typically made in rural areas like rural Maine, or NY State or the mountain south. There is no glamour here, but we produce the hides and the trees, so have a natural advantage – yet we have ceded the shoes and the furniture. (The shoes are all gone now, but a little furniture making is still being done).
It is not my place (or my skill set) to write either a full history or to make a detailed recommendation for the future. But history suggests that the time is ripe for our government to direct the growth of new technology (much as it did railroads when they were new). The technology I have in mind is that transmission of electricity. Electricity can be produced by diverse means, from water power (dams and inertial power) to wind, to solar and nuclear, but it requires a single and integrated transmission system (the power grid) to use all the power we can produce. One of the biggest bards to using wind power (especially) is the lack of adequate transmission line.
We should:
1) Assess the grid’s capacity, and robustness (excess capacity, need for maintenance etc)
2) Locate the need for additional capacity to pull in new sources – chiefly to rural areas
3) Build it
4) Nationalize the control and maintenance (take the grid away from the private power company)
With such a program we would gain jobs, energy capacity, and potentially improve our ability to pivot from high carbon to green energy sources. But it won’t happen if we wait for the market’s unseen hand. That unseen hand never existed.
*Yes, I know the West was not really empty, but that Stone Age nomads peopled the Great Plains before the white settlers. But like all such peoples who encountered western man, they were eventually defeated. Perhaps we could have done better, but that would have required an historical perspective that was not ascendant in the 19th century. In any case, this piece is not meant either to explore or ignore the plight of those who came first.
**The creation of the Interstate Highway System was as transformative as the transcontinental railroads had been. And, like what happened with railroads, where towns that were bypassed died, so too, cities were in a sense “bypassed.” The new suburbs grew, full of homeowners and a brand new infrastructure, while cities were left with those who couldn’t move away – the elderly, and the poor. Old factories that once were at least close to the railhead – so retained an advantage with regard to shipping costs – now were unable to compete with their spanking new peers that were built close to the interstate (and could be accessed with little worry about traffic jams). And while we damaged the revenue base of towns, we never thought to share the revenue from suburbs. The result haunts us to this day.
*** If you are not familiar with the controversy around what ended the Great Depression, then it is enough to say that some say the New Deal was not large enough to counter the decrease in state and local spending, so that even with the stimulus, the New Deal was just too small. Others, like Amity Shlaes (it’s the standard Republican view) point out that the New Deal was a failure, blunting recovery. Paul Krugman takes the too little point of view, and continues to inveigh for more spending now.