This wide-ranging review of US economic history is a cracking read – somewhat surprisingly. It starts in 1775, tracks the nation’s economic development through the Civil War, Prohibition, the wars of the twentieth century, and closes with the legacy of the recent financial crisis and Donald Trump.

If the US at the outset was a sparsely populated, land-rich, agriculture-based, immature economy, by the twenty-first century it was an arguably over-mature behemoth, still with a robust resource endowment and a proud industrial history, but now hampered by a number of policy initiatives whose consequences were less beneficial than planned.

The authors – inevitably given their backgrounds – focus on the financial sector which initially expanded broadly in parallel with the maturing industrial base as the economy grew in scale and sophistication as innovation and enterprise thrived. Agriculture scaled up and became more commercial, while industry evolved to reap the value added from the output produced. Cotton was an important example of how industrial processes emerged, albeit with the innovation and value added largely being in the north while the raw material was produced in the south. The widening availability of finance – again largely in the north – facilitated this process.

But the key to US economic success in the authors’ view is that creative destruction was embraced. Ongoing change allowed winners to thrive, lifting overall output sufficiently so that losers were not always too disadvantaged as new, different, opportunities became available with new innovations. Essentially there was a process of reinvention and adaptation, helped by improving infrastructure and high mobility, both between and within states and from overseas.

By the end of the nineteenth century, joint stock companies were becoming more numerous, a shift that enabled the growth of corporate giants, some of which eventually became today’s monopolies then multi-nationals as mass production began to dominate industrial processes. The shift, of course, also deepened the appeal of popular capitalism as share ownership became an option for more people and financial management emerged as a new service industry.

Inevitably, this was not without hiccups occurring on the way. There were a number of crises – in the banking sector in 1893, the depressed 1920s culminating in the Great Depression and followed by the trade wars of the 1930s that ended with the second world war and the emergence of the supra-national supervisory structure we still now have. Most recently came the 2008 global financial crisis.  

The authors make much of policy mistakes, especially surrounding the Great Depression, citing the tariff and interest rate decisions as well as controls on migration as key errors. Excessive leverage was another key problem. Laissez faire does not escape criticism either, not helped by the absence of federal authority before 1913. Nonetheless, innovation persisted and created a virtuous growth cycle. Telecommunications emerged, the auto industry became efficient and affordable and production modernised. After the second world war, this process accelerated, with aviation, space, nuclear and communications emerging as new frontier initiatives while iterative changes made transport, communications, power and education more modern and efficient, reinforcing the upswing. Information technology compounded the positives.

So the US economy grew, powering the global economy and leading the world in scale, power and influence.

But then it all faded. The authors suggest the drift started with LBJ’s overblown ambitions after Kennedy’s caution, followed by the Vietnam war and the years of inflation. This erosion of the US lead came just as Japan was booming and overtaking the US in autos and electronics, in invention and efficiency – and pricing. Then as the twenty-first century approached, increasingly China was pressing for this lead. Meanwhile, Wall Street’s revival pushed creative innovation into financial services rather than industry while globalisation increasingly squeezed local enterprise. Trade deals like NAFTA further concentrated production. Then came 2008 and in 2016, Trump.   
Unlike in the past, however, the US by now had developed a network of entitlements, aimed at cushioning some of those at risk of losing out from change from the worst of the impact. Government had become too big and increasingly unaffordable. Entitlements were extremely welcome from a welfare perspective but less so from an economic renewal perspective. Resources became less mobile and business strategy more short-term. Growth – and growth potential – decelerated, now without robust recovery in sight. Not mentioned but implicit in this line is that it was Japan’s so-called zombie companies and policy of lifetime employment that led to the long years of economic atrophy there, exacerbated by an ageing population. Worryingly, China too has its share of zombies in the form of propped-up state-owned companies. Its economy is now slowing while its people age rapidly.

Yet although China and Japan enjoy strong social cohesion, in the US – fuelled by Trump and similar discordant forces elsewhere – political divisions are deepening. This is far from healthy – and true too of some of Europe. For a solution, the authors extol Swedish consensus. By determinedly scaling back entitlements and the role of the state after the 1991 bank crisis, Sweden managed to restore fiscal discipline, re-energise its economy and reignite growth and innovation without relying on excess leverage. Such a fate may be a positive way ahead for the US, unlocking a new phase of economic expansion that this time is underpinned by better policy.