Capitalism in America: An Economic History of the United States

by Alan Greenspan

genius lay in three things that are rather more subtle than invention: making innovations more user friendly; producing companies that can commercialize these innovations; and developing techniques for running these companies successfully.

like China today

The productivity revolution changed the face of rural America. Women and children were increasingly liberated from backbreaking toil: women focused on domestic economy, empowered by new machines such as the sewing machine and inspired by new fads such as

productively

“scientific housework”; and children spent more time on education. The productivity revolution also changed America as a whole. America’s cattlemen and cowboys turned beef from the

innovations that had the potential to revolutionize industries; bringing distant factors of production together, often moving matériel huge distances; and integrating previously discrete economic activities, from the production of raw materials to the sale of finished products.

robber baron strategy

limited liability corporation

financial advantage

Great Society involved a massive expansion of the entitlement state: two

Managing by numbers discourages innovation because it compels managers to focus on short-term certainty at the expense of long-term possibilities.

The problem was deeper than poor management. The American system of production—producing long runs of standardized products—had allowed relatively unskilled workers to create highly standardized products for easily satisfied consumers quickly and cheaply. But it was no longer suited to a world characterized by rapid change, global competition, consumer power, and high levels of volatility. U.S. firms were faced by new competitors who didn’t think that you needed to make trade-offs between quantity and quality or standardization and flexibility. Japanese producers in particular argued that they had produced a new production system that provided variety and cheapness. URBIS ET ORBIS

common: they created the conditions for a business revival, removing the shackles that had bound business ever tighter in the postwar years and eliminating the inflation-related uncertainty that made it difficult to plan for the long term.

Clinton put two policies at the heart of his presidency—balancing the budget and embracing globalization.

The economic boom that Clinton finally enjoyed was driven by four profound changes that had been developing from the 1970s onward: the revival of entrepreneurialism; the deregulation of financial capitalism; the advance of globalization; and the high-tech revolution.

America is looking less like an exceptional nation and more like a typical mature economy: overburdened by big government, mired in slow growth, and fearful of the future. The next chapter will

America prospered in large part because it accepted that destruction is the price for creation.

The most important reason is the growth of productivity-suppressing entitlements—the collection of social benefits (primarily Social Security, Medicare, and Medicaid) that Americans enjoy simply by right of being Americans. Aside from

The primary driver of productivity (output per hour) is capital stock

The third problem is the growth of regulation, which acts

“You can’t get into trouble by saying no.”18 Overregulation forces business founders to

At this writing there are growing signs that America is in the early stages of stagflation—a dangerous combination of stagnation and inflation that can prove stimulating at first but which eventually brings wreckage in its wake, as

central mechanism of this progress has been creative destruction: the

source of America’s economic problems

lies elsewhere—in the rise of entitlements and the instability of the financial system.