28 June 2012

Another Economic History of the US

At the Breakthrough Dialogue 2012 later this week I'll be giving a response to Michael Lind, of the New American Foundation and author of the recent book, Land of Promise: An Economic History of the United States with a focus on innovation.

I liked Land of Promise, but I will offer two critiques. One is that while history provides an unbroken narrative structure to economics, it can mask changes that make one era incomparable with another. This is illustrated in the slide above from my presentation.

It shows that in 1800 the size of the entire US economy (GDP in 2005 dollars) was the same size as the GDP of Pascagoula, Mississippi in 2005. (Data from here and here.) By 1850 the US economy had grown to the size of Rhode Island's 2005 GDP, by 1900 it was Virginia, and 1950 it was the size of California's 2005 GDP.

While I am sure that Robbie Maxwell, current mayor of Pascagoula, has some fine ideas on economic development, they probably don't carry the authority of invoking George Washington. Yet, both public officials manage(d) economies of comparable size. So I do have some issues with applying lessons from economic history to innovation-focused policies of the 21st Century.

That said, I do agree with Lind's bottom line:
"Industrial policy is not alien to the American tradition. It is the American tradition." (p. 465)
The bulk of my response will focus on explaining the mythology of the so-called "linear model of innovation" (discussed here in PDF by Godin) which surrounds Vannevar Bush and post-War US science policy -- which Lind accepts far too uncritically.  The linear model, married to a convenient misreading of economics theory, has restricted our view of innovation policy for decades.

Land of Promise is a stimulating book. Despite these issues, I enjoyed it a great deal. (See also David Douglas here).


  1. Roger, what do you mean by the linear model?

  2. -1-Mike McHenry

    Thanks, and apologies for the inside baseball;-)

    Here is a picture:

    And I've added a reference to a very good (and readable) paper that provides a comprehensive discussion.


  3. As an research manager I didn't look at product development in discrete boxes. The inputs to product development were enabling technologies e.g. you need to invent the wheel to invent the cart, the transistor and lithography for IC's, computing power to map the genome, etc. In most cases it's many innovations coming together to enable a new one.I think This is why your GDP curve is exponential. There is a lot more technology (tools if you will) on the shelf to invent with than 100 years ago. PBS had a good series on the process a number years back.

  4. The graph looks similar to Angus Maddison's 2006 graph of per capita income from 1 CE to 2000 CE.http://www.ggdc.net/maddison

  5. "Yet, both public officials manage(d) economies of comparable size."

    It's highly unfortunate that people think a president or a mayor "manages the economy" of a country or town.

    The only president who really manages an economy is President Castro. Needless to say, it's not working out very well.

    P.S. Thankfully for the U.S., I doubt President Washington ever thought he was "managing the U.S. economy."

  6. The core is not industrial. We are a post industrial nation and yet the trend continues.
    The root is freedom. Our freedom has mad us self selecting for success. This exponential curve started in western europe, but in the US it has worked for people of all creed, races cultures and origins. It has worked in the industrial venue, and every other.

  7. A lot of people would benefit from a few episodes of James Burke's "Connections".

    Example http://www.youtube.com/watch?v=OcSxL8GUn-g

  8. Agree with Mark, except to quibble that I think Presidents Chavez and Kirchner are also attempting to manage their economies, with similar success.

    Washoington's attempts to 'manage the economy', largely a result of succumbing to Hamilton's worst instincts, caused the Whiskey rebellion, wherein the nascent United States first used military force against its citizens.

  9. Unfortunately the political class certainly attempts to manage the economy, but its members fail to recognize all the signals they send, from fuzzy to crystal-clear.

    The stock of many corporations has taken a hit as the companies lowered guidance starting in May because of the $607B Taxmageddon coming 1/1/2013. Imagine the uproar we’re on course to witness in early November, right before election day, when hundreds of businesses announce possible layoffs in compliance with the 60-day notice requirement of the Warn Act. Some in Congress think that this will be fixed during the lame-duck session, but businesses can’t duck the law.

    The flow of federal funds for necessary manufacturing, service, and support contracts could dry up even sooner as federal contracting officers ponder their liability under the Antideficiency Act in the face of the sequestration. Would you sign a contract knowing that the money’s not there?

    The economic trough we’re trying to crawl out of was caused in large part by government policy to expand home ownership by loosening lending standards. That would not have been disastrous had government not removed the lenders’ risk through semi-private agencies’ purchases of the poor-quality loans and repackaging them for resale as safe investments.

    Hayek was right: The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

  10. This comment looks to have disappeared while I was away:

    "I have a theory about the service sector's growth. Manufacture goods continue to grow but at a slower pace than services http://www.clevelandfed.org/research/trends/2008/1108/03ecoact.cfm. A good example is the automobile sector which is much larger than say 1970. The number of automobiles on the road has reached 250m vs 100m in 1970. The drivers were population and vehicle life (read technology) This great increase in vehicles demands more services- banking, maintenance, etc. Another example are new machines and instruments. The MRI unknown in 1970 is now common place. This new instrument created a service industry. My point is as technology creates new machines it creates lots of services.

    Mike McHenry"

  11. #10 - “My point is as technology creates new machines it creates lots of services.” True, but the level (quantity) of services required decreases as the manufactured items either improve in reliability (a function of design) or become obsolete more quickly because of a more rapid pace of innovation.

    Through regulation and innovation the components on today’s vehicles require servicing / replacement at a far lower rate than those of 1970s and 1980s did. Factory shock absorbers, mufflers and other exhaust components, and tires that lasted 25K miles were the exception. Spark plugs and other ignition bits and pieces lasted a bit longer, and so forth. Components on today’s vehicles last two to four times longer. My four-year-old vehicle with 80K miles is all original except for filters, tires, brakes, and wiper blades.

    Personal computers become obsolete more quickly and are rarely repaired (don’t purchase the extended service contract!). TVs with vacuum tubes gave way to transistor-based units with but one tube for the picture, now I challenge you to find any device at Best Buy with even one vacuum tube.
    Who keeps a cell phone for more than a year or two? When was the last time you replaced the stylus on your turntable or the capstan on your tape machine? Much of modern convenience is disposable because the components are so inexpensive despite their high quality.

    Even modern industrial machines adjust themselves to keep output within tolerances, and modern components can replace complex, troublesome parts in old but otherwise serviceable machinery, a type of rejuvenation we humans are trying to engineer for our own bodies. When the mainspring in our 19th century Westminster chimes wall clock finally blowed up real good, I replaced the entire works with an electronic unit with programmable chimes that sound better than the original. I still have the original clock works -- a beautiful device, artwork in brass -- on my bench, but get more accurate time and a wonderful sound from a heartless lump of plastic, silicon, and an assortment of cheap metal.