Summary
"Capitalism in America" by Alan Greenspan provides a comprehensive examination of the American economy through various eras. Greenspan begins by discussing the significant investments made by the US after the launch of Sputnik in 1957, which included the establishment of NASA and the military funding of research organizations like MIT. This period, under President Eisenhower, was characterized by heavy military expenditure, with the Pentagon receiving 6 out of every 10 federal dollars.
The book highlights the post-war managerial capitalism era, where the economy was dominated by a few large companies in the auto, electricity, and consumer goods sectors. During this time, unions were powerful, and welfare was primarily delivered through corporations rather than the state. It was also a period of significant innovation, with developments such as container cargo transforming logistics and franchising emerging as a new business model.
However, the 1970s were marked by economic turmoil, with three disgraced presidencies, defeat in Vietnam, and a sharp decline in productivity due to high inflation. The decade also saw major geopolitical shifts, including the US going off the gold standard and an oil shock caused by the OPEC embargo.
The 1980s and 1990s marked a revival of entrepreneurialism and deregulation. This era was characterized by the emergence of new entrepreneurs who leveraged new sources of cash, great universities, and a liberal immigration policy. The relationship between corporations and society also began to shift, with a greater focus on performance and shareholders.
Despite these economic successes, the book also points out the risks that emerged by the end of the 1990s, including a fragile financial system, a more crisis-prone globalization, and the rise in consumer debt.
The book then discusses the economic crisis of 2007, which Greenspan attributes to a combination of factors including China's boom, securitization, financial innovation, and political pressure on Fannie Mae and Freddie Mac. Despite the crisis, Greenspan argues that policymakers enacted a superior response which prevented a true Great Depression.
In the final chapters, Greenspan argues that America's dynamism is fading, with less geographical mobility, a declining rate of new company creation, and a broken education system. He also points out the problem of entitlement spending, which he argues is crowding out domestic savings and hampering business confidence.
In conclusion, Greenspan argues that while America has enjoyed unprecedented abundance in the 20th century, it now faces significant challenges due to excessive entitlement spending and over-regulation. He calls for reforms to address these issues and restore the dynamism of the American economy.
US = 5% of world population, a quarter of its GDP
but we're in a secular stagnation (Tyler Cowen, Larry Summers)
"fading dynamism"
new companies being created is at a modern low (!)
American inherited from Britain precursors to its economy: