Book Notes: "Land of Promise"

I recently read Land of Promise, a book by Michael Lind on the economic history of the US. The book is currently being discussed in Breakthrough Institute circles and was reviewed by the NYT last week.

Land of Promise provides an anecdotal history of the American economy, framed by the competing philosophies of Hamilton (large organizations with direct government collaboration) and Jefferson (small, independent organizations with limited government involvement). Organized as short anecdotes representing key points in time, the book provides an overall sense of US economic evolution against the backdrop of historic events. In addition to Hamilton v. Jefferson, innovation and jobs are key sub-themes of the book.

I’ve read lots of history books and lots of economic surveys, and this was one of the most enjoyable (especially in the economics category). I learned quite a bit from it. But while I’d recommend this book to anyone, it was not without its weaknesses. I’ll focus on two: Lind’s selective treatment of the topic, and the inherent weakness in the Jefferson v. Hamilton framework that Lind has chosen to construct his book around.

Selective History

As the book wore on I was increasingly troubled by what Lind chose not to include. Part of my discomfort is natural with any anecdote-based book – you can’t help but leave a reader wondering how you decided which stories to include, and which ones to leave out.

The other discomfort came from the issues that the book directly or indirectly raises, but never chooses to explicitly address. Some big ones for me were:

  • In a book that discusses global economic competitiveness and the social contract, the book never touches on education.
  • In a book that talks about innovation, the economy and jobs growth, the book ignores small and medium businesses, a major source of innovation, and creator of more than half of the new jobs in the 90’s and 2000’s.
  • In a book with themes of economic justice, the book ignores the undercurrent of crony capitalism that runs through its storyline.

Maybe the author felt that these were not part of the book’s Hamilton v. Jefferson framework, or maybe he left them out because they didn’t support his thesis. Either way, the absence of these topics weakens the value of the book.

The Unhelpful Framing

I believe that Lind fell into a trap, and it greatly reduced the value of his excellent recounting of US economic history. By selecting a framing with two directly opposing sides and using the book to build a conclusive argument for one, the book fails to provide guidance in anything but the most black and white of questions.

Discussions of the Solyndra bankruptcy frequently fall into this same trap. One side says “The government shouldn’t be participating in the private sector this way; look at how much money they’re wasting.” The other side defends the investment with: “Since Alexander Hamilton the government has a rich history of spurring innovation and economic growth, and Solyndra is just the expected cost of doing business.”

The defense’s response, seemingly justified by the Land of Promise, logically unravels in its own lack of discrimination. Are some forms of government involvement and investment in the private sector more effective than others? No, they’re all good. Is there a limit to the effectiveness of government involvement and investment? No, more is always better.

The federal government is the world’s largest investor in research and development. Through investment, regulation, the tax code and market incentives, the government influences the strategy and day-to-day operating decisions of every company in America. While a small minority may want to have an all-or-nothing discussion about this indisputable fact, the reality is that all meaningful discussions are about degree of involvement and investments.

Discussions about the details are becoming more important every day. The federal budget is, for the foreseeable future, a zero-sum game: when one initiative gains budget, some other initiative necessarily loses it. This is not only true in major budget buckets (e.g. defense v. health), but also within innovation funding itself. We need a serious discussion about how to optimize limited investment and involvement of the federal government in innovation, as a driver of economic growth.

How should we balance fiscally constrained investments in government-funded R&D and education? What types of government support are most effective at each phase of the innovation cycle? Which phases of the innovation cycle is the government most effective in? Are post-startup companies better helped by direct financial support, or by market-side investments that help grow demand for their products and services? What government regulations are slowing the growth of small and medium companies in strategic industries?

The list goes on and on. These are tough questions, but finding better answers is extremely valuable, and history can provide important data to lead us to those answers. In Land of Promise Lind had a chance to add important insight to this discussion, but constrained by his Hamilton v. Jefferson framework, he limited his contribution.

[Disclosure: I’m a huge proponent of federal investment in energy innovation, but at the same time I believe the Solyndra loan guarantee was deeply flawed at many levels. Furthermore, I believe that the DOE Loan Program that originated the Solyndra loan guarantee should be dramatically de-emphasized relative to other programs, such as ARPA-E. Some of my analysis is in this post]