Sustaining America’s Exceptional Economy
Published: July 10, 2018
There are many reasons to be optimistic about America’s future. Our nation’s success has propelled us into global prominence, but to remain successful we need to maintain our exceptional economic position. If we lose it, we will be losing more than the right to claim that we are the land of opportunity.
This four-part video series explores what has made America's economy successful, what sets it apart from other nations, and what needs to be done to sustain its prominence in the global economy. Lazear shows that America and its people have prospered by prioritizing economic freedom, industriousness, low taxes, light regulation, free trade, and openness to immigration.
Edward Lazear studies labor markets, tax reform, human capital, and their effects on economic growth. He is the Morris Arnold and Nona Jean Cox Senior Fellow at the Hoover Institution and the Davies Family Professor of Economics at Stanford University's Graduate School of Business. He also served at the White House from 2006 to 2009 as a chairman of the President's Council of Economic Advisers.
- Read American Exceptionalism in a New Era edited by Thomas Gilligan.
- Read “America’s Exceptional Economy” by Edward Lazear.
- Read “Herbert Hoover and American Exceptionalism” by George Nash here.
- Read “Ronald Reagan and American Exceptionalism” by Annelise Anderson here.
- Read “The American Dream Is Alive in the Minds of Young Americans” by William Damon here.
There are many reasons to be optimistic about the United States.
For one, new money tends to dominate old money in this country. Look at the Fortune 500 firms from 1955 and you won’t see McDonald's, Walmart, Apple, CVS, Microsoft, Amazon, Home Depot, United Health Group, all firms that are now in the top 10 to 20 firms in the country. Many didn’t even exist in 1955. America benefits from exceptional, tremendous mobility not only among people. The same is true of individual wealth. Think about the richest people in the country right now. A hundred years ago, those were names like Sloan, Carnegie, Ford, Getty. Their descendants are probably still pretty wealthy, but the wealthy individuals names today (Buffett, Gates, Ellison, Bezos, Koch, Zuckerberg, Bloomberg, Walton, Page) where not among them.
Is this mobility a stable element of American economics or has it changed over time? Consider Mr. Obama’s response to a question by Edward Luce of the Financial Times about whether America is exceptional. Then President Obama said, “I believe in American exceptionalism just as I suspect the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.” That was a very tactful answer, but probably not an issue on which you want your president to be humble. If I were going to think about other things that he could be humble about, I could think of plenty that I’d put before whether we were the greatest country in the world.
Some, including former President Obama, do not believe in our formula of light regulation. They do not believe that incentives matter very much. They believe that redistribution rather than growth is the most important feature in an economy. We’ve seen in recent years the erosion of employment at will. We’ve seen increases in marginal tax rates, especially those on capital.
Some of the policies put in place are anti-growth and tough to maneuver. During the Obama administration we saw increased regulation—Dodd-Frank, the Affordable Care Act, EPA, redefining navigable waters, among the most egregious. All of these seem to be movements back and impending the progress of our exceptional economy.
Importantly, exceptionalism is not all about economics. While it’s true that economic success affects our standard of living, it also affects our prominence in the world. Historically the countries that have led the world, not only in terms of economic position but also in terms of their political position, have always been the richest. It’s expensive to have an army. It’s expensive to have national defense. It’s expensive to be a world leader. Think about Rome, 18thcentury Britain, and the U.S. in the 20thcentury. They were all the richest economies in the world. The Soviet Union collapsed when it became impoverished and could no longer afford to support an enormous military.
The Trump administration has to accomplish a number of things to get America back on the path to exceptionalism. It is essential to reduce the burden of regulation. Changing the tax code to lower impediments to investment is a must. Trade with other nations should be encouraged, not feared. And for the longer run, growth in expenditures must be controlled so that the government does not completely overtake capital markets. Finally, it is most important that we continue to improve the skills and knowledge of Americans workers. All growth derives from human capital and the output and technology that are its consequence.
Whether we want to be a world power is a separate matter. But having the ability to do so clearly depends on our exceptional economic position. If we lose it, we will be losing more than merely the right to claim that we are the land of opportunity.