Individual Age Economics

First Principles: Arguing the Economy

By Andrei Cherny

Candidates for office, it has been said, will show up for the opening of an envelope. This is especially true for those seeking an office like state treasurer. So it was that in early October of last year I found myself waiting for my turn to speak at the Yavapai County Tea Party forum. By then it was clear that as a Democrat campaigning statewide in Arizona in 2010, the effort I was engaged in could be reasonably called an “uphill climb” only if the hill in question was named Everest. Nevertheless, I was hopeful, though not blindly optimistic, that there was a path to victory—one that, at least partially, would run through convincing audiences like this one that, though a Democrat, I was the candidate who was more attuned to their concerns.

It didn’t take long for me to realize that this was one avenue that was closed off. Before it was time for my opponent and me to take the stage, I sat listening to the candidates for Congress debate. Like the audience at an old-time Saturday morning cliff-hanger, the crowd cheered the hero Republican and hissed at the villain Democrat. I turned to my campaign staffer and whispered through a tight smile, “Pull the car around when I get up there. We may have to make a run for it.”

It was the kind of gallows humor on which campaigns thrive, and despite receiving my own share of jeers while speaking, the people there were as friendly to me personally as they were completely uninterested in voting for me. But something bigger was at play that Saturday evening in Prescott than Tea Party politics and the ruminations of a doomed candidate for an obscure office.

The moderator, wearing a ten-gallon hat and sporting a Yosemite Sam moustache, told both congressional candidates that the first question would be about the subject polls had identified as the most pressing public concern: jobs and the economy. The freshman incumbent, a Democratic former state legislator, began her answer by defending her vote for the stimulus package and, over a chorus of boos, asserted that local teachers, firefighters, and police chiefs were thankful that government spending had saved their positions. She went on to tout investment in wind and solar energy as a way to create more local jobs. The Republican nominee, a prominent Flagstaff dentist endorsed in his primary by Sarah Palin, proclaimed, “I’m a simple person. I speak hick.” He offered fulsome praise for hard work and personal responsibility, and the only policy idea he offered was a brief mention of cutting the capital-gains tax. He won on Election Day by six percentage points.

With the country battered by the Great Recession, the economic debate in the 2010 elections came down to this: an often half-hearted support of government spending from Democrats; economic nihilism from Republicans. In the teeth of the worst economic calamity in more than a half century, in the aftermath of a lost decade in which most families saw their standard of living drop, in the wake of 30 years of declining real income, in the face of America falling behind in innovation and education, both progressives and conservatives have offered little in the way of new answers as their long-held orthodoxies run headlong into new realities.

Over the past decade, both parties have had their moments in which they could, as much as is ever possible in our system, put into action their basic economic philosophies. Both the Bush tax cuts of 2001 and the Obama stimulus of 2009—the former Lafferism, the latter Keynesianism—attempted to drive economic growth by injecting more money into the economy. But at a time when the economy is global, capital is mobile, and a few extra dollars in a family’s bank account can go to purchase Chinese-made TVs and sippy cups at Wal-Mart, such efforts have far less impact than they once did. In the meantime, in an era of staggering deficits and debt, government by hot check—whether through tax cuts or spending—exacts its own price on the nation’s economic stability.

Thus America has responded to the enormous challenges the economy faces in the short-term and long-term alike with a complete failure of vision and verve. Each side frets endlessly about its own version of a nightmarish future ahead—and then fails to do much of anything about it. For conservatives, the coming apocalypse looks like modern Greece—an economy overwhelmed by entitlement spending and the demands of rapacious public-employee unions for ever-larger pension benefits. For progressives, the fear is we’re becoming ancient Rome—a society riven by inequality, where wealth is concentrated in the hands of a tiny, insular aristocracy that buys off the masses with bread and circuses.

So how was it, then, that in December of 2010, both parties came together around a package of tax cuts and benefits that added some $900 billion to the deficit over the next five years while preserving lower tax rates for the richest 2 percent of the nation?

Hamiltonian Means to Jeffersonian Ends

While much of the news coverage of the deal was filtered through the prism of Washington’s concerns—partisan advantage, political hypocrisy, electoral positioning—it was an ultimately revealing exercise about the state of our economic ideas. Every Republican in the Senate voted to oppose Senator Chuck Schumer’s attempt to let only the tax cuts for millionaires expire. Many liberal commentators saw the defense of lower taxes for the top .03 percent as a sop to Republican campaign contributors, but something more honest and fundamental was at play. Conservatives sincerely believed that these 315,000 Americans are the “job creators”—the men and women who take the risks, build the businesses, hire the workers, and drive our economy.

There is, of course, truth in that point of view. But there is another tradition that views the American economy as being driven not from the top down, but from the bottom up. It says that our economy grows not because of those who have made it, but because of those who are on the make—the innovators, the strivers, the entrepreneurs, the shop owners who get there early and stay late, the working men and women whose honest labor builds the skyscrapers in whose penthouses the magnates sleep.

These two points of view can be traced back—mostly neatly, sometimes not—to the country’s founding, and the intellectual and political duel between Alexander Hamilton and Thomas Jefferson. Hamilton believed in providing capital and resources to an educated elite whose growing power would lift the new republic’s economy. He began America’s first industrial conglomerate and thought that businesses required government’s “interference and aid” through special subsidies and great infrastructure projects that would facilitate growth.

Jefferson had a different perspective. As the great twentieth-century historian Samuel Eliot Morison wrote in 1965, “Hamilton wished to concentrate power; Jefferson to diffuse power.” In 1776, he proposed giving every white adult male in Virginia 50 acres of land if they did not already own that much—an essentially egalitarian move to distribute opportunity in that agrarian society. Three decades later, having made the continental-scale purchase of the Louisiana Territory, he suggested 164-acre tracts be carved out and sold at $1.64 an acre and proposed a network of colleges to be built on grants donated by the federal government—visionary proposals that would finally overcome conservative opposition to see fruition in the form of the Homestead Act and the Morrill Land-Grant Colleges Act, both passed in the spring of 1862.

Jefferson’s ideas carried the day because they fit the times. In 1800, 75 percent of the free workforce were independent farmers, and most of the rest were independent shopkeepers. Only 12 percent had what might be called a “boss.” The word was not even commonly used until the 1830s.

But with the rise of steam and steel, America began to creep toward industrialization and its larger, more complex economic organizations. By 1860, 40 percent of Americans worked for someone else and the economic discussion began to change. That same spring of 1862, as Americans reeled in shock from the carnage of Shiloh, Congress also passed the Pacific Railroad Act. The financing of the transcontinental railroad by the federal government was a wholly Hamiltonian policy featuring massive subsidies to corporations that made Midases of Leland Stanford, Collis Huntington, and other railway barons in the name of building a critical piece of a growing nation’s infrastructure.

As the railroads helped accelerate change, America’s economic center of gravity moved from farms to factories, and the agrarian philosophy of Jefferson yielded to an assembly-line reality that was more suited to Hamilton’s philosophy. By 1920, fully 87 percent of all wage earners were not only working for someone else but for a corporation. Days spent in hierarchical, regimented workplaces shaped Americans’ thinking and expectations when it came to economic policy just as surely as did life on autonomous farms a century earlier. Workers grew accustomed to following precise orders from their superiors and relying on large, impersonal institutions to provide for them and guide them. And a rising, Industrial Age America needed large-scale economic efforts to drive growth and a bureaucratic infrastructure to ensure that this prosperity was distributed.

From this cauldron, twentieth-century economic liberalism was forged. From the welfare-state programs of the New Deal and Great Society to the infrastructure investments of the Tennessee Valley Authority and interstate highway system, the policies at the heart of the Industrial Age economy were essentially paternalistic in their nature. In the phrase of Herbert Croly, whose ideas came to define twentieth-century American government, the approach was Hamiltonian means to Jeffersonian ends—strong, centralized, top-down government working to provide sustenance to all.

But as the twentieth century came to a close, the Industrial Age ended as well. Where most employees once worked in enormous enterprises that relied on rote tasks—from the autoworkers on the assembly lines to the garment workers sitting behind sewing machines—today’s Americans are more likely to work in service jobs that require them to interact with other people. Most Americans work with a computer and the Internet. They process data and solve problems. The Internet has given them a plethora of personal options and decision-making power on everything from travel arrangements to personal banking. Some have termed this the Information Age, but that fails to capture the defining feature of the modern economy. If the primary element of the old economy was the industrial unit, today the Industrial Age is giving way to the Individual Age, where it is the skills, talents, and labors of people that matter most. Now our economic policies have to start catching up.

Jeffersonian Means to Hamiltonian Ends

It could be said that the Agrarian Age ended on a sweltering July night in 1893 when an unknown University of Wisconsin professor named Frederick Jackson Turner read his paper on the closing of the American frontier to an assembly of scholars gathered at the Chicago Columbian Exposition. So too it might one day be said that the Individual Age kicked off in a small ballroom at a Sheraton in Denver on a snowy Sunday morning in January 2011 when a government economist named Ying Lowrey presented a paper entitled “Estimating Entrepreneurial Jobs” to a convention of her peers.

What Lowrey presented was a window into a new economic approach. For at least 30 years, it’s been known that small businesses drive job creation. According to the Bureau of Labor Statistics, small businesses employ half of all workers and create 65 percent of new jobs. The Kauffman Foundation has reported that from 1980 to 2005, firms less than five years old accounted for all net job growth in the country.

But, according to Lowrey, these impressive facts still fail to capture the full story. She posited that the traditional ways to look at the statistics radically undercount the role of entrepreneurs in the twenty-first century. While the jobs they create for others are counted, the jobs they create for themselves—often while their firms are unincorporated—are usually not. According to Lowrey, a total of 48 million new jobs had been created by startup firms between 1997 and 2008. The remarkable part was that while 17 million of those jobs were positions that entrepreneurs were creating for others, 31 million were jobs entrepreneurs had created for themselves. Lowrey put it starkly: “Business creation is job creation.”

The implications are profound and far-reaching. It means that the “job creators” that conservatives seek to focus on are largely not the people they have been talking about. Today’s job creators are less likely to be the tycoons throwing up factories than a laid-off worker firing up his laptop in a Starbucks.

The differences between the economy of the nineteenth century and that of the twenty-first are too many to list, but today, as in Jefferson’s time of independent farmers and shopkeepers, it is individuals, not large conglomerations, that propel the economy. The number of Americans working for themselves is growing rapidly and most Americans no longer work full-time for someone else. Yet it is not just the self-employed or entrepreneurs who are part of this new world. Every worker is grappling with the Individual Age. Lifetime employment with a single company is largely a thing of the past and the dependable health, retirement, and training benefits such a relationship held are fast disappearing. Americans born between 1957 and 1964 held an average of 11 jobs between the ages of 18 and 44. That trend is accelerating and is much more pronounced among those born in later decades. Untethered from large institutions, bouncing from one job to the next, today each individual is ultimately responsible for guiding their own career and economic future. Today, everyone is an entrepreneur; everyone is their own small business.

Yet, in this Jeffersonian moment, Americans are largely being offered two Hamiltonian approaches from their political leaders, with both progressives and conservatives promoting a top-down view of economic prosperity. Beyond the rejectionism of the Tea Party, mainstream conservatives still see economic policy solely through the prism of providing more capital to the privileged captains of industry who can then make the best choices on how those funds should be used. Most progressives, along with so-called “national greatness” conservatives, have their own Hamiltonian vision of our economic future—one of high-speed trains racing across the plains, deserts filling up with solar arrays and prairies sprouting wind turbines, government-sponsored research into new technologies and cures, cities tied together with networks of broadband and repaired bridges.

While the top-down tax cuts are of limited long-term economic value, the top-down infrastructure initiatives are crucial to our future but incomplete as an economic program. Moreover, they ring hollow to Americans who are less concerned with the rise of China than with their own personal ability to get ahead in today’s economy. While making America more globally competitive is vital, the gaping hole in our economic discussion is an agenda for making Americans more personally competitive.

Today, instead of Hamiltonian means to Jeffersonian ends, we need the reverse: Jeffersonian means to Hamiltonian ends—strengthening the hand of the individual and breaking up concentrated power in both government and corporate bureaucracies in order to unleash national prosperity and economic growth.

What would an Individual Age economic policy look like? It would start by refashioning the Department of Labor into a “Small Business Administration for individuals,” with help and training for workers in navigating their careers, assistance for entrepreneurs, lifelong learning loans, and wage insurance plans. Unemployment benefits should be modernized from a safety net into a trampoline so that they not only cushion the blow for millions of laid-off workers but help them find better jobs and create new ones. Health-care and retirement benefits should be made more personalized, portable, affordable, and universal, as envisioned by Oregon Senator Ron Wyden and others. Fundamental immigration reform should open the doors of America to the most highly skilled and hardest-working people of every country in the world. New initiatives should be taken to help Americans build assets from birth so that they can use them to start new businesses and create personal wealth. The Obama Administration’s smart Startup America public-private partnership should be taken to scale so that new businesses can be started with the kind of urgency and resources the federal government used to bail out failed dinosaur corporations. The public education system needs to be radically reformed and a college education made as universal as Industrial Age reformers made high school a century ago.

These ideas have been discussed previously in isolation, but as a whole this people-focused economic approach is not on Washington’s radar screen. If we are going to reclaim the promise of broad-based growth, it needs to be. An economy battered by recession will start to stir again in the coming months and years, but it is not enough to seek to restore the economy as it was before the flood. We need more than a return to the status quo of a lost decade and a generation of diminished expectations, when flipping houses and shorting stocks took the place of innovation and effort, two-income couples maxed out their credit cards and took out second mortgages just so their families could tread water, and the nation piled enormous deficits on top of already monster debts with nothing to show for it.

The task ahead in the Individual Age is to create a Horatio Alger economy, a drive to rebuild the possibility of upward mobility that is at the heart of the American experience. For today’s middle-class Americans, life is a game of “Chutes and Ladders” with more chutes than ladders. While individuals have been thrown back upon themselves, both progressives and conservatives have acted as if the economy still functions from the top down. If America is to recapture the economic growth that was Hamilton’s concern and the broad equality of opportunity that was Jefferson’s dream, our mission must be to forge a new economics for the Individual Age that rethinks our economy from the bottom up.

Andrei Cherny is the author of The Candy Bombers: The Untold Story of the Berlin Airlift and America’s Finest Hour.

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