This isn’t a normal book review, because I’m not going to plug this book. More the opposite, actually.
Concrete Economics is in most respects a traditional work in that field. For openers it is literally a cure for insomnia. I read at night before bed – in bed – a practice most sleep experts say is likely to ruin your nocturnal regimen, and I have had more than a few nights “ruined” by the likes of Michael Lewis and Oliver Sachs. After a few pages of Cohen and DeLong I was usually more than ready to turn out the light. At 170 pages, this tome that should have been a one-sitting read for me took nearly a month to finish. Even by the standards of the Drear Science, this book was a slog.
The authors’ style is heavy with one paragraph sentences, multi-syllable words and overly formal vernacular. For example: “The East Asian Economies were eager to build up their manufacturing capacity and capability, and our ideologically motivated redesign of the American economy told us that we didn’t really care, because we didn’t really want those sectors.” Did I mention the mixed metaphors? “Alexander Hamilton: the only individual who may have been more than the tip of the spearhead of the heavy shaft of an already-thrown, near-consensus view on pragmatic economic policy.” I nearly fell asleep typing that.
The book came highly touted by Paul Krugman, Nobel laureate and oracle of Progressive economics, so I expected to disagree with much if not all of the content. I was (mostly) wrong.
Lost style points aside, the authors make a fair case that some economic planning by the Federal government is essential to the success of the Republic (italics mine, certainly not Krugman’s). Early on they discuss the formative post-Revolutionary policies of Hamilton, who pushed the fledgling US government to assume the colonies’ war debt, establish a central bank and, most crucially, pass a series of tariffs designed to protect America’s emerging manufacturing sector. The only way the country could gain real economic independence, argued Hamilton, was to industrialize. The plan worked well. US makers were soon thriving and the tariffs protecting them were the government’s main source of revenue until the advent of the income tax.
Hamilton’s protective tariff model was adopted by Japan and, later, China as those countries struggled to join the Industrial Revolution. Contemporary fans include our current president, who would also appreciate the authors’ use of words like “huger.” I think they meant, “more bigly.”
The book details several reboots of the US economy that are traceable to gentle, occasionally firm, nudges from Washington D.C., through Southern Reconstruction, the New Deal and Eisenhower’s interstate highway system. The prevailing wisdom seemed to be: “Try it, and if it works, keep doing it.” But in 1980 the Practical began to take a back seat to the Ideal. Cohen and DeLong peg the Reagan years as the beginning of true hands-off government economic policy. Reagan cut taxes, raised defense spending and walked away as the beginnings of Super Wall St. were germinating in a high risk, low regulation petrie dish. In the mad rush to monetize every asset and transaction, the big investment banks and brokerage houses kicked off a growth spurt that would see the financial sector go from 3% of GDP to over 20% by 2008.
Clearing one fifth of the nation’s economy by essentially moving money around and taking a percentage for the privilege, the authors assert, is both senseless and unsustainable. Wall St. banks have one job: to allocate capital. Were they doing it better in 2007 than in 1979? Or were they just getting paid a lot more to do it, and for almost no added value? Cohen and DeLong’s assessment of the high-flying high finance of the last 30 years is embodied in the opinion of Former Fed Chair Paul Volcker, who once stated that the greatest innovation in the money business during that period was the ATM.
By 2007, just before the Big Fall, one-half of the total profits generated by publicly-traded US companies were going to financial firms. Economies are not zero sum games, but there can be little argument that the amount of money currently being sucked from the investment pool by Wall St. creates a drag on every other economic sector. Can the American growth engine keep pulling against this parasitism? The authors are not optimistic.
There are a few interesting historical nuggets. For example, Charles Dickens never saw a penny from the sale of his works in America, due to the US, not unlike modern China, having no respect for the Englishman’s intellectual property rights. The narrative could use more of these.
The authors conclude that throughout our history the government has pulled the US out of numerous economic tailspins by enacting reasonable, concrete policies, not by adhering to rigid economic ideology. Their contention that the free rein given to High Finance since 1980 was a monumentally bad move is tough for free marketers to swallow, but their evidence is compelling. Not irrefutable, but compelling.
I’m not glad I fought my way through this book. Writing the review has been a chore as well. I learned a good bit from it, but I will stop short of recommending it. If you do take it on, you can certainly put away your Lunesta.