Saturday, June 09, 2007

Sympathy for the Federalists

New York Times op-ed columnist David Brooks says there are four schools of thought on economic policy:
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.

Brooks places himself in the "Hamiltonian" camp. What makes a Hamiltonian?

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... We Hamiltonians disagree with the populists because we don’t find their storyline persuasive...

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.

It may help Brooks to sell his ideas - which mostly aren't bad - to associate them with a venerated founding father, but his reading of history is questionable. Hamilton advocated tariffs and government subsidies for industry. His thinking might be viewed as a precursor to the idea of "industrial policy" - active government intervention to develop certain sectors of the economy - which is pretty far out of fashion these days. One of Hamilton's arguments for industrialization in the famous "Report on Manufactures" was: "women and children are rendered more useful and the latter more early useful by manufacturing establisments than they otherwise would be."

If anyone had a "human capital agenda" among the founding fathers, it was Hamilton's rival, Thomas Jefferson, who advocated universal (for white males, anyway) public schooling in Virginia and founded the University of Virginia. Unlike Hamilton, Jefferson was also a beliver in free trade.

Brooks is not the only one experiencing Alexander Hamilton nostalgia - the recently established "Hamilton Project" is trying to develop "centrist" policy ideas. Though many of the people associated with the project are Democrats - for whom Alexander Hamilton should still be a dirty word - maybe its not surprising that they've chosen to use his name. One of the project's founders is Robert Rubin, who served in the Clinton administration after working at Goldman Sachs and is now at Citigroup. Hamilton founded a bank, and was criticized for being overly sympathetic to financial interests.


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