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Just so you know DeLong is one of the few blogs Larry Summers reads
ever day. DeLong is very smart and Professor at Berkley. - MPA


Westward the Course of Empire Takes Its Way...

Gee. I go off to Ohio State and Barry Eichengreen becomes depressed:

Is America Catching the “British Disease?”: Imperial overreach,
political polarization, and a costly financial crisis.... [I]t is
important to understand the nature of the British disease. It was not
simply that America and Germany grew faster than Britain after
1870.... The problem was Britain’s failure in the late nineteenth
century to take its economy to the next level. Britain was slow to
move from the old industries of the first Industrial Revolution into
modern sectors like electrical engineering which impeded the adoption
of mass-production... failed to adopt precision machinery that
depended on electricity, which prevented it from producing machined
components.... The same story can be told about other new industries
like synthetic chemicals, dyestuffs, and telephony, in all of which
Britain failed to establish a foothold. The rise of new economic
powers with lower costs made employment loss in old industries like
textiles, iron and steel, and shipbuilding inevitable. But Britain’s
signal failure was in not replacing these old nineteenth-century
industries with new twentieth-century successors.

Is America doomed to the same fate? Answering this question requires
understanding the reasons behind Britain’s lack of technological
progressiveness... Britain failed to put in place an effective
competition policy. In response to the collapse of demand in 1929, it
erected high tariff walls. Sheltered from foreign competition,
industry grew fat and lazy. After WWII, repeated shifts between Labour
and Conservative governments led to stop-go policies that heightened
uncertainty and created chronic financial problems. Herein lies the
most convincing explanation for British decline. The country failed to
develop a coherent policy response to the financial crisis of the
1930’s. Its political parties... remained at each other’s throats...
politics grew fractious... policies erratic... finances increasingly
unstable.

In short, Britain’s was a political, not an economic, failure. And
that history, unfortunately, is all too pertinent to America’s fate.