Popular myths about American economic history

Economic science is not just about mathematical formulas and models. It is necessary to know history to understand what economic models and development strategies work and what will lead to an economic miracle.

The key to American success was not just luck, geography, etc. America became wealthy because of a successful foreign policy and sound economic policies, not because of any situational factors. This system has one architect - Alexander Hamilton, the first Secretary of the Treasury and one of the founding fathers of the United States.

Ideological myths about the American economy

There are many myths surrounding the American economic miracle. For example, that it occurred due to the small role of the state and the policy of non-interference. There are also many myths around American free-trading and protectionism. Often libertarians rush to enroll Hamilton in their camp, that is, claim that he is a libertarian, although in fact Hamilton did not believe in the principle of “the market will solve everything”. In general, it is worth saying that American economic history is very diverse. America has undergone many shifts left and right in its economic policies and social policies.

The American state has systematically created new economic spaces and made every effort to encourage entrepreneurship in these new sectors of the economy. As a result, innovation was always there and the American economy was constantly expanding.

It's worth saying that there was no preference for methods here, as right-wing politicians and economists now like to issue. For decades, the guiding principle of lawmakers and economic policy implementers has been pragmatism, which means they can use whatever methods they want.

No one disputes that the wealth of all modern developed countries, as well as China, Poland, India and other fast-growing economies, is based on sound economic policy. The economic history of the United States and other successful countries shows us that the main thing to ensure is not the graphomania of economists or the implementation of delusional ideas of right-wing or left-wing ideologues, but a deliberate and continuous effort to support productivity.

In America there have always been conflicts and rivalries between government and business, and yet they worked together because they were interdependent. This unity has contributed to the constant renewal of the American economy and its growth. The intertwining of interests has always existed, and this pushed for compromises.

There has always been a choice of a new direction in America, and it has been based on a shared vision of where the American economy should go and what is needed to move it in that direction. Abstract ideas or ideological “truths” never provided direction. Pragmatism was so strong that ideology did not even influence the question of American economic development.
The question revolved around how to achieve new growth and, of course, pay those who put the most effort into it.

Interestingly, the U.S. government was not the only government trying to change the American economy. Japan, China, and South Korea had created successful manufacturing-export type economies. In the U.S., export manufacturing policies were designed to redirect effort from sectors of the economy where there was high competition with imports in the domestic market, and to channel those resources into new areas that were to become new high value-added industries in the future.

The triumph of the “invisible hand of the market”

The invisible hand of the government has picked up the “invisible hand of the market” to tinker with new industries. Both the U.S. and Asian governments were adjusting the U.S. economy. On the one hand, the American market became a good place to sell Asian exports, especially steel, ships, electronics, automobiles, and some industrial equipment, which had a positive effect on American consumers; on the other hand, it became bad for America as it became more difficult for American manufacturers to compete with Asian manufacturers. In addition, most Asian companies belonged to friendly countries, which made it more difficult to fight sanctions and other protectionist measures, especially the imposition of sanctions under political pretexts such as human rights violations or the need to weaken a competitor's economy to deter hostile actions.

The damage to the U.S. economy has been significant, with manufacturing's share of GDP nearly halving from 21.2% to 12% in 30 years. Instead, the financial sector was deregulated. In addition, the Pentagon's budget has been bloated, all of which is essentially ballast for the U.S. economy as it generates no net income.

There is a common misconception that the decline in manufacturing is a consequence of the transition to a post-industrial society and is therefore normal. In reality, however, consumption of manufactured goods has hardly declined at all. It can be said that a fall in production is normal only if it is proportional to the fall in consumption. Moreover, those goods that have ceased to be partially or fully produced have become imported, and most of America's trade deficit consists of these very goods. That's about 5% of GDP.

The problem doesn't end there, and the money spent on buying imports could be used to invest in the production of export goods. East Asian countries have been increasing production, and they have done so primarily because the ideology of restructuring the U.S. economy said that this was normal and could be ignored. Asian countries did well thanks to extensive business lending. This allowed them to improve their technology base and engineering capabilities.

What America needs?

America needs modernization. Both Democrats and Republicans have successfully modernized in the past. America needs to move away from the current paradigm of minimizing intervention in the economy to a more proactive approach and take the lead. If the U.S. government does not change the American economy, other countries will do so, with negative consequences for America. No one knows what the configuration of the new economy will look like, which industries will emerge and which will die a natural death, as happened with the typewriter industry. The key is to choose a vector and push people in the right direction.