The Economy And Government

Michael Lind gives a FiveBooks interview at the Browser (h/t Ritholtz).  I found the whole thing to be great, but I love his case that the American economy prospered because of government involvement, not in spite of it:

Your latest book is a sweeping economic history of America. In a nutshell, how did America become such an economic powerhouse?
Well, it did so as a result of collaboration between the government and the private sector and, increasingly in the 20th century, the non-profit, academic research sector. It’s quite a different story in reality from the tale that is sometimes told of how capitalism grew up without controls in the United States, and then with the New Deal it came under regulation. In fact, the government both at the federal and the state level was deeply involved with projects for promoting the industrialisation of the United States and the creation of a capitalist market from the administration of George Washington onwards.
One of the ways it did so was through investing in infrastructure. We’ve had a series of ambitious infrastructure projects – the early canal system and then the transcontinental railroads that were funded by the Lincoln administration and Congress at the beginning of the Civil War, through to the interstate highways system. But government contribution to the economic growth wasn’t just limited to that – it included funding basic research. For example, Congress gave a grant to Samuel Morse, who developed Morse code and the first American telegraph [in the 1840s], and the government role in R&D [research and development] became central in World War Two. This continued after 1945, with Department of Defense procurement and the National Institutes of Health and other forms of basic federal R&D.
One of the things I argue in my new book is that American economic growth has not been continuous – it’s been very discontinuous and even cataclysmic. Here I follow the school of economists known as Schumpeterians after Joseph Schumpeter – the Austrian-American economist, who in the 1930s identified waves of technological change and successive techno-economic paradigms. With other historians of the US economy, I argue that we’ve had three successive industrial revolutions. The first one began in the late 18th century and was based on steam power and produced the locomotive and steam-powered factories. In the second industrial revolution the key transformative technology was the internal combustion engine, which gave us automobiles, airplanes and electricity. The third industrial revolution, of which we are still in the early phases, is the information or the computer revolution. Each one of these has transformed the economy while, at the same time, the political institutions that were designed for a different stage of economic and technological development have grown increasingly anachronistic. The basic argument of my book is that periodically there are cataclysms like the Civil War and reconstruction like the Great Depression and World War Two, and I believe today’s Great Recession is the beginning of another historic change. In these periods you get waves of reform in which the political and social institutions of the country are remodelled to catch up with the economic structures that have already been transformed by technology.

Too often, conservatives ignore the various ways in which government involvement in the economy has promoted growth.  They love to recite their free market fairy tale, where the market does everything right and the government does everything wrong.  It isn't close to matching reality.