The Next American Economy: Nation, State, and Markets in an Uncertain World, by Samuel Gregg, Encounter Books, 336 pages.

Arriving amid widespread disillusionment with “market fundamentalism,” Samuel Gregg’s The Next American Economy is a right-wing neoliberal’s attempt to grapple with the disappointments of recent decades and to offer a vision of “market liberalism” grounded in American values. Gregg, to his credit, recognizes that the heady promises of the “end of history” have gone unfulfilled. Yet he seems to think the major problems are rhetorical, not substantive. Gregg pays lip service to concerns around national sovereignty, geopolitical competition, and so on, but offers no serious proposals for navigating situations in which market incentives conflict with national interests. Indeed, Gregg’s utopian ideal of perfectly self-regulating markets, totally insulated from politics, offers little to inform practical policy or to illuminate economic history. Rather than provide a fresh theoretical framework to encourage market competition or entrepreneurial innovation, the book mostly exposes the contradictions within Gregg’s own worldview.

The substantive arguments of the Next American Economy can be summarized in a few sentences. First, government intervention in the market will essentially always produce worse outcomes than the undisturbed free market. He acknowledges that intervention may still be necessary in rare cases, but he provides only an abstract definition of these exceptions and no practical proposals to address them. Second, he insists that holding this view does not make one a globalist or a progressive, and in fact it is the very essence of the American experiment and its survival as a “commercial republic.”

It is not possible in this review to discuss every example Gregg adduces to prove that government efforts to support or protect domestic industry, regulate monopoly, and so forth must necessarily fail. Nor is it my purpose to argue that every such effort will succeed, or to dispute his interpretation of the facts in every case. Nevertheless, a few glaring omissions and even errors that indicate the ideologically motivated nature of his analysis merit mention. 

For instance, Gregg highlights the Department of Energy loan received by Solyndra, a solar company that quickly went bankrupt. He neglects to note that Tesla also received a loan from the same program to build its first factory. He ignores successful Chinese state support for companies like Huawei, let alone for entire sectors like battery manufacturing and rare earth mineral mining and processing. Multiple countries whose industrial policies are of global significance—including Taiwan, South Korea, and Israel—are not discussed at all. Gregg dismisses the importance of government funding to the development of Silicon Valley, along with several foundational technologies and even firms, because “there was no government department overseeing [the] design, construction, and operation” of the internet. On the other hand, when the Defense Department directly supports companies and industries, that support is characterized as national security policy, not industrial policy, as if the categorization affects a policy’s substantive merits.

Gregg often implies that industrial policy is the opposite of entrepreneurialism, even though governments do undertake policies to support entrepreneurs and venture capital, as has occurred in Israel, China, Singapore, and not least the United States. These programs do not always succeed, but neither have they always failed. The same report that Gregg cites to document the failures of U.S. clean-tech loan guarantees notes that Israel’s Yozma fund, a state matching-funds program for venture capital, “delivered beyond the wildest dreams of the founders.” Not surprisingly, Gregg neglects to mention that.

In his discussion of Chinese state-backed investment vehicles, or “industrial guidance funds,” Gregg argues that guidance funds have crowded out private capital. He writes, “From a high of 45 percent of venture capital invested worldwide in the early 2010s, Chinese companies had fallen to 15 percent of that total by the middle of 2019.” Yet as Gregg’s own source indicates, China’s share hit 45 percent in the second quarter of 2018, not the early 2010s, when it was around 12 percent. In 2010, venture investment in China totaled $5.9 billion, according to Bloomberg, and was at the same level in 2013. Guidance funds began ramping up in 2014, after which venture funding grew rapidly. China posted over $60 billion of venture investment in 2019, ten times the 2013 total, and $130 billion in 2021.

To be sure, guidance funds have suffered significant failures, especially in the semiconductor sector, along with some successes, but there is little reason to believe that they have crowded out private capital. The numbers arguably show more sensitivity to U.S. government restrictions on China’s tech sector. In the major down years, 2019 and 2022, the United States took significant actions against Huawei and China’s semiconductor industry, respectively, with U.S. investors pulling back.

Later, Gregg calls for the repeal of the Jones Act, citing the fact that American-made ships are about 400 percent more expensive than foreign ones. He fails to mention, however, that the major shipbuilding nations—South Korea, China, Japan—all engage in massive subsidization of their domestic industry. It is true that the Jones Act has failed to stop the long-term decline in American commercial shipbuilding, but the global industry hardly offers an example of the free market in action.

More broadly, Gregg seems to think the story of U.S. manufacturing since 2000 is merely one of technological progress and “America embracing the shift in its comparative advantage towards high-skilled, high-end manufacturing . . . while developing countries now have a comparative advantage in unskilled tasks like assembling the various components.” This is hard to square with growing U.S. trade deficits in advanced technology products and large declines in export market share. He seems to think that manufacturing output finally overtaking its 2007 level in 2019 is cause for celebration, though other countries recovered much more quickly, and the period since China joined the WTO has seen lower U.S. growth than any other twenty-year period in history. “To walk inside an American factory today is to enter a world very different from that of the 1950s,” Gregg writes. Does he believe this is not the case in Taiwan? In fact, U.S. manufacturing actually uses fewer robots than Korea, Japan, and Germany, while China is rapidly closing the gap.

Gregg does not deny the “China shock,” the rapid loss of manufacturing jobs after China joined the WTO. He even goes so far as to declare, “When I hear conservatives say that we cannot leave entire communities of Americans to rot, I can only agree.” He then proceeds to insist that the real problem must be diagnosed correctly, suggesting that unemployment benefits, health care assistance, etc., “actually discouraged people from moving to find work.” 

Whether or not one accepts Gregg’s empirical claims at face value actually makes little difference to his core argument. As his inability to acknowledge a single counterexample suggests, The Next American Economy is primarily concerned with a theoretical critique of the concept of government intervention, not detailed analysis of the pros and cons of concrete policies. In this respect, there is a telling contrast with serious advocates of, say, industrial policies, who acknowledge and study both successes and failures, weighing things like the different effects of matching equity versus loan guarantees, in order to design better policies. 

The essence of Gregg’s critique is that the Hayekian “knowledge problem” inevitably undermines any industrial strategy or other intervention. “Efficiently realizing [the goals of industrial policy] assumes,” he writes, “that political leaders, civil servants, and technocrats possess the knowledge to comprehend all the technical details, possible methods of production, the range of incentives, actual and future prices, unintended consequences, and alternative uses of resources (to name just a few sets of information) that they would need to decide accurately the most optimal allocation of resources and courses of action.” Since no one can know all these things, Gregg, following Hayek, asserts that market-based resource allocation is inherently superior, because price signals communicate diffuse information and coordinate dispersed actors better than any central authority can. 

For multiple reasons, this seemingly elegant theoretical argument breaks down in the real world. Most importantly for our purposes, market price signals do not simply convey the workings of some spontaneous order of individuals and firms. They also communicate the interventions of foreign governments, including hostile ones. If China, for example, subsidizes machine tool exports, then global prices, and therefore returns on investment in the sector elsewhere, go down, and America’s domestic industry declines. Thus, naïvely following market signals offers no escape from industrial policy or state intervention; it effectively means letting foreign governments pick winners and losers. However imperfect human knowledge may be, a strategy of one’s own is almost always preferable to unilateral disarmament against the predatory practices of geopolitical rivals.

Neither Hayek nor Gregg considers this complication to their theories of market information transmission and resource allocation. Hayek, at least, had an excuse. During the Cold War, the Soviet bloc generally sought to preserve its independence from the Western economic order. Countries joining that order were therefore de facto allies. While they often maintained asymmetric tariff rates and pursued their own industrial strategies, the threat these posed was at most commercial, and the United States could exercise considerable influence over them if necessary, as in negotiating the Plaza Accords of 1985.

But now the world has returned to a pre–Cold War mode in which rivals seek to profit off each other while pursuing conflicting foreign policy ambitions. That is, they use economic policy to carry out war by other means. Gregg—following Adam Smith and David Hume against Montesquieu—rightly recognizes the limitations of doux commerce theory, or the idea that trade between nations brings peace. He does not, however, sufficiently appreciate Hayekian price signals’ loss of innocence in this new order.

The result is that Gregg is able to acknowledge, with Adam Smith, that defense is more important than opulence, and that nations must protect industries vital to their defense. But he cannot offer any serious framework for defining these interests or practical policy approaches to advance them. Gregg cautions against construing the defense industrial base too broadly, but offers no framework for defining what essential defense industries actually are in an era of “dual-use technology.” Certainly the country must be able to manufacture aircraft, ships, vehicles, and weaponry, but what input components are critical? Semiconductors, batteries, critical minerals? What about telecommunications hardware? Generic pharmaceuticals? Nuclear reactor components? In many of these cases, the United States has minuscule global market share and little manufacturing capacity.

Given the widely recognized deterioration of the defense industrial base, what would Gregg do to fix it? Essentially, all he can do is acknowledge the legitimacy of the concern and move on. At one point, he laments Chinese technology theft and forced technology transfers, somewhat contradicting other assurances that most of these transfers “are generally two or three generations behind whatever is state-of-the-art.” Regardless, he offers no remedies. He says that “American companies … need to avoid directly bolstering the military and security forces of regimes deemed hostile to the United States,” though even here he does not advocate strengthening relevant laws. Why should firms—many of which consider themselves “multinational” rather than “American”—forgo these profit opportunities as long as they are legal, or inquire too deeply into counterparties’ activities in the first place? This is a wish, not a policy recommendation. 

Perhaps the most debilitating aspect of the Hayekian market mythology is that it effectively precludes practical policy analysis. When government interventions are viewed as nothing but interference with the price signals that provide for the best of all possible worlds, there is little reason to differentiate between policy models or explore their respective merits. There does not even appear to be much incentive to examine issues like whether tariffs might be preferable to income tax, or whether a financial transactions tax might be desirable to fund cuts in taxes on long-term capital gains, or when to employ tools like “milestone” procurement contracts (as used by NASA and SpaceX). For the Hayekian, the only reason to study any policy is to prove the a priori conclusion that it is harmful. Any phenomenon that cannot be attributed to imprudent government intervention must be beneficial, because the market delivered it. Thus Gregg can always find a way to explain why government intervention will fail, but he can’t offer any solutions to the problems he himself identifies.

This pattern repeats throughout the book. The chapter titled “Competitive Nation” begins with a summary of evidence suggesting reduced competition in the U.S. economy and emphasizes the importance of robust competition. Gregg then proceeds to reject every antitrust remedy on the grounds of the consumer welfare standard and to argue that increased industry concentration—even to the point of “one or two firms’ dominance of a market”—does not necessarily imply reduced competition. In the end, the best one can do is deregulate and allow the market to work its magic. Gregg also urges American businesses to “make it a point of pride not to ask legislators and regulators to limit competition” and calls for “naming and shaming American companies which play these games.” Apparently, despite his earlier criticism of ESG, what he really wants is his own corporate governance rating system.

The point here is not to categorically dismiss the consumer welfare standard or to reject prudent deregulation. But it is telling that Gregg’s arguments, on this and other issues, could have been written in 1980 and ignore many of the novel developments that have motivated the recent revival of antitrust. The emergence of internet platforms like Amazon, for example, which operate as both a retail seller and marketplace administrator—with unique access to third-party retailer data and the ability to determine search rankings on its platform—raise new concerns. The proliferation of noncompete agreements and high-profile cases of wage collusion in Silicon Valley introduce others. Are mobile app store fees upwards of 30 percent a fair market rate or a monopoly rent harming app developers and entrepreneurs? Do index funds or venture capital and private equity firms holding significant investment positions in competing companies encourage collusion? 

In the past, the advent of new industries such as electricity, mass transport, and mass communications brought forth new regulatory paradigms, for the benefit of industry as well as the wider economy. Reiterating the tenets of an antitrust framework popularized by Robert Bork in 1978 does little to refute arguments that another paradigm shift may be needed today.

Moreover, although consumer welfare is undoubtedly important, is it all that matters? Gregg seems to think the “consumer is king” on antitrust, trade policy, and other issues. Yet as economists like to say, every choice involves tradeoffs. If greater trade with China led to lower consumer prices but also resulted in the loss of strategic industries, the loss of workforce skills and tacit knowledge, forgone innovation opportunities, forced technology transfers, exposure to a hostile surveillance apparatus, and severe human costs in several regions, was it really worth it? Likewise, perhaps lax antitrust enforcement of Big Tech has not led to rising consumer prices. But it is at least arguable that allowing a handful of platforms—Apple, Google, Facebook, Amazon Web Services, and a few others—to dominate the consumer internet, and to exert massive influence over what information, apps, payment services, etc., are accessible to most people, has imposed other costs.

Despite his reluctance to pursue antitrust efforts, Gregg is nevertheless no friend of large corporations. The perhaps surprising enemy of The Next American Economy is not leftist professors, political activists, or even government bureaucrats, but the corporate sector itself. On seemingly every page, Gregg excoriates corporate America for its lobbying activity, its rent-seeking, its use of political influence to distort market mechanisms. “The intersection of business and politics,” he writes, “is good for neither the economy nor politics.” This is “corporatism,” and it leads to the death of freedom. 

If corporate lobbies can so easily undermine the free market, then Gregg’s system seems to face insurmountable contradictions. After all, how could anyone expect businesses not to lobby; isn’t pursuing their self-interest exactly what they are supposed to be doing? (As one Fortune 500 executive once said to me, “I have a duty to my shareholders to lobby.”) Gregg puts forward no proposals to restrict supposedly nefarious corporate lobbying—in fact, not so long ago, most of his ideological confederates cheered the Citizens United Supreme Court decision that allowed for more corporate money in politics. Nor does Gregg identify any organized constituency that could act as a countervailing power against it. His ideological vision, with its deference to private wealth accumulation and avowed consumerism, tends to both encourage unconstrained lobbying and undermine the public spiritedness necessary to bear the costs of resisting, say, corporate bailouts during a crisis. Furthermore, if government officials are nothing but hopeless bureaucrats who could never possess enough knowledge to make the right decisions anyway, why shouldn’t they just go along with whatever the largest donors want? 

Ironically, given Gregg’s disdain for corporatism, it would seem that sustaining his vision of market liberalism requires some form of mediation structure that could coordinate various stakeholders around a long-term common interest—in this case, the maintenance of the market mechanism—which competitive lobbies have no incentive to pursue. Indeed, if corporatist approaches are gaining traction today, it may be because we already experience many of the alleged evils of corporatism with none of the supposed benefits. Reduced competition, economic stagnation, the extensive and sometimes corrupt entanglement of public and private sectors are visible every day, as they are in Gregg’s own account. What is absent are intentional efforts to coordinate interest groups around a common good, the rejection of which is the essence of neoliberal ideology. Gladden Pappin has described this situation as “dilapidated corporatism—corporatism for me but not for thee.”

For Gregg, ideological debates over whether America imagines herself to be corporatist or market liberal, a commercial republic or not, have very high stakes. In his last chapter, he seeks to show that his notion of a commercial republic was central to the founding, while implying that anyone who dissents from this view is somehow hostile to the “American experiment.” These arguments, in particular, seem to be aimed at the growing portion of the right that has abandoned Reagan-era neoliberalism. Gregg recognizes that the progressive, globalist rhetoric of today’s neoliberals—coupled with their theoretical hostility to American nationalism and personal animus toward many right-wing constituencies—has alienated large swathes of conservatives who formerly embraced George W. Bush’s neoliberal agenda. To counter this trend, he seeks to show that, in fact, not all neoliberals are progressive globalists and that his preferred policies are the only path to American renewal. 

Presenting himself as a conservative and a patriot hardly constitutes a compelling counterargument, however. Gregg’s doctrine faces more profound problems than the off-putting rhetoric of his fellow neoliberals. It is not so much that Gregg can’t find enough quotations from the Federalist; his vision just can’t live up to them. The founders were pragmatic on economic issues and, as he acknowledges in his treatment of George Washington, not committed to “a pure laissez-faire position.” The founders certainly sought to encourage private commerce and were sensitive to the risks of over-taxation, over-regulation, and interfering with private property. But they did not conceive of “the market” as a maximally efficient information processing mechanism that must never be interfered with, nor of the state as its permanent enemy. They did not believe that political officeholders would need to comprehend all alternative uses of resources, future prices, and technical details before taking measures to promote an industry. Early American statesmen had varying degrees of enthusiasm toward tariffs and industrial strategy, and often adjusted their attitudes depending on the specific circumstances. In many cases, however, the young republic did embrace these policies, whereas Gregg rejects them categorically. 

Gregg claims to share the founders’ pragmatism, and he pays lip service to concerns like protecting industries vital to national interests. But if his commercial republic would ever take action to defend such interests, he does not explain it in any detail or offer any concrete proposals. On the contrary, his model of a commercial society is nineteenth-century Britain. Although the Victorian age was a high point for the British Empire, this example is hardly encouraging. By the early 1900s, Britain’s economy was outmatched by the United States and Germany, in no small part because a dogmatic commitment to free trade prevented an adequate response to these rising protectionist powers.

The larger problem is that economic history simply does not conform to Gregg’s ideological narrative. Not only is Gregg’s suggestion that tariffs are somehow antithetical to the American idea belied by the fact that the United States has had (relative to today) high tariff rates for much of its history. On trade and other issues, many changes in policy just do not match with the ideological categories he has constructed. In the “entrepreneurial” Gilded Age, for example, the United States maintained high tariffs, while in the more “corporatist” New Deal and postwar eras, tariffs were significantly reduced.

Moreover, particularly in the early republican period that Gregg focuses on, the leading proponents of commercial expansion, economic dynamism, and modernization were also some of the most forceful advocates of interventionist and protectionist policies: Alexander Hamilton, Henry Clay, Abraham Lincoln, among others. Try as he might to play down this fact, Gregg cannot get around it. More broadly, it was the commercially dynamic North that favored tariffs, and the agrarian, semi-feudal South that called for free trade. Thus in making the moral case for markets and “enterprise on the part of free individuals,” Gregg finds himself approvingly citing South Carolina senator Robert Y. Hayne’s attack on Henry Clay’s plan to support domestic industry: “promoting certain employments at the expense of others [is] unequal, oppressive, and unjust.” Needless to say, such overwrought moralism sounded more than a little preposterous coming from one of America’s most outspoken defenders of slavery, though to this day many “free enterprise” advocates oppose efforts to limit trade with countries using forced labor. A perhaps even greater irony is that Hayne introduced a bill to grant federal subsidies to a private railroad company just a few years later.

A less tendentious reading of both this period and the longue durée would recognize that Gregg’s pro-market versus anti-market framing is in large part a relic of a particular Cold War ideology, which he attempts to project back onto all of American history. Before the rise of communism, most economic policy debates did not primarily revolve around the axis of “state” versus “market.” They were rather contests between factions, or perhaps “industry lobbies,” pursuing different modes of private capital generation. If one insists upon applying a simplified binary categorization across modern history, especially now that the fall of communism is an increasingly distant memory, it is far more plausible to view these disputes as conflicts between “developmentalist” and “rentier” coalitions. (Communism can also be interpreted in this way.) 

Developmentalists privilege capital creation, promoting, for example, greater investment, productivity and output growth, and the formation of new industries and regulatory models. Rentiers, on the other hand, emphasize capital accumulation, e.g., rents, asset values, and the preservation of their existing economic or social prerogatives. Since these coalitions are not primarily ideological, their specific policy programs and theoretical justifications change with circumstances over time, and today’s rentiers are often yesterday’s developmentalists. 

In the first century or so of American history, especially between the War of 1812 and the Civil War, the industrializing North formed the core of the developmentalist coalition. This coalition was hardly anti-market, but it favored strong infant industry protection and promotion. Southern planters were rentiers, and the West was a contested space. After the Civil War ended, the triumphant Northern developmentalists ushered in a policy paradigm featuring high tariffs, massive subsidies for the railroad industry, as well as land grant mechanical and agricultural colleges, but also minimal taxation and business regulation. As modern corporations and financial markets increasingly supplanted family and local businesses, however, this economic policy regime became increasingly untenable. 

A new coalition arose against the “economic royalists” of the rentier establishment, triumphing during the New Deal and World War II. This coalition recognized that continued economic expansion required managing the risks of macroeconomic instability; it advocated settlements between capital and labor, the stabilization of consumer demand, tighter financial regulation, formalized relationships between industry and government, infrastructure development, and major investments in technology. With American industry facing no significant rivals after World War II, tariffs fell and new international trade arrangements arose, but they were also accompanied by the Bretton Woods managed currency regime. 

Over time, the New Deal order came to be increasingly characterized by poorly designed welfarism and, yes, zombified, rent-seeking corporatism, while foreign industry presented new competitive challenges. As early as 1971, a White House report concluded that “the nation’s economic superiority was gone.” A new “supply-side” coalition emerged, and not only on the right. In addition to tax cuts, deregulation, and de-unionization, this coalition’s reforms enabled investment capital to flow in new directions. Regulatory changes allowed more investment into high-yield debt and venture capital, the latter also benefiting from a new wave of defense technology spending. The power of shareholders was strengthened through various corporate governance reforms, imposing greater discipline on sclerotic corporations. Fannie Mae began securitizing mortgages. The Bell telecom system was broken up, even as antitrust enforcement generally was relaxed. Some significant protectionist efforts were undertaken during this period, such as the Plaza Accords, but in general these could not be pushed too far without alienating Cold War allies. Instead, both policymakers and industry looked to strengthen intellectual property protections and development. It was at this time that neoliberal ideologies of “the market” began to gain widespread adherence, both informing and justifying the economic paradigm shift that was underway. 

Like the New Deal coalition before it, however, the Reagan supply-side coalition would decay, though into a very different kind of rentierism. The crucial shift might be described as the divergence of neoliberalism from supply-side improvement, occurring amid globalization and “end of history” enthusiasms, which left little room for developmentalist energies. Contrary to Econ 101 theory, late twentieth century globalization had little to do with maximizing natural comparative advantages, but it did allow multinational firms to exploit labor, tax, and regulatory arbitrage, foreign subsidies, and currency manipulation through offshoring and reimportation into the American consumer market. Whereas neoliberal reforms had once opened new avenues for growth capital, the same policies increasingly encouraged counterproductive financial engineering and levered asset bubbles. Instead of reinvigorating corporate America, financial market discipline resulted in short-termism. Firms like GE, Boeing, and Intel spent more on share buybacks than on capital or research investment, even as they lost significant ground to foreign competitors. As Andrew Smithers has observed, “before 2000, companies increased investment in response to corporate tax cuts, but afterwards, they stopped doing so.” Private venture capital funding reached new highs, yet Silicon Valley increasingly shifted away from productivity-enhancing technologies and toward ad-driven social media apps, money-losing “sharing economy” companies, and most recently crypto Ponzi schemes. The new tech job of the “knowledge economy” became driving an Uber.

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Neoliberal theory, imagining itself to be the source of eternal truths, cannot imagine that the effectiveness of its policy prescriptions might merely be situational and contingent. As Pascal-Emmanual Gobry has noted, neoliberals can see every unintended consequence of government intervention, but they cannot see any of the unintended consequences of liberalization. Thus, their policy ideas have not changed since the 1980s, and the underlying market mythology now offers nothing but rationalizations for a rentier economy. These rationalizations have merely shifted from proclamations that “everything is great” to “things are not as bad as they seem,” to, in The Next American Economy, admissions that the problems are real but nothing can be done about them.

Right-neoliberals like Gregg may be opponents of today’s emerging developmental coalition, but they are largely irrelevant to the rentiers, who prefer left-liberal justifications of the status quo. As Gary Gerstle has illustrated in a recent book, neoliberalism has always contained right and left strains. Both Robert Bork and Ralph Nader were consumer welfare advocates, for example, and both environmentalists and libertarians urged electricity market deregulation. With the advent of “woke capital,” it has become obvious that left neoliberalism has definitively triumphed. A few high-frequency traders and monopolists may opportunistically support right-neoliberalism but, as Gregg’s invectives against lobbyists attest, only provisionally. Meanwhile, those concerned about traditional values have little reason, at this point, to believe that neoliberal means—marketization and the maximization of personal liberty—are the best way to advance conservative ends. 

Hence right-neoliberals like Gregg find themselves orphaned. Hayek once wrote about “the decisive power of the professional secondhand dealers in ideas.” Today, such intellectuals are essentially all that is left of his former political coalition, now held together mainly by personal and generational ties rather than any compelling policy project. In his conclusion, Gregg sounds a pessimistic note, suggesting that a revival of his “market liberalism” is more to be hoped for than expected. There is little reason to think otherwise. But this is not because corporate lobbyists are any less virtuous than they were twenty or forty years ago, or because Americans have given up on the American experiment. It is because Gregg’s ideology has so little new to offer, politically or intellectually.