This series begins by asking what new ideas we can discover by looking at Henry Clay’s old idea of the American System, arguing for more robust state action to rebuild our industrial base, restore national infrastructure, and protect workers and consumers. Historically and today, much of the focus has been on national development in the context of international competition.
But this focus risks obfuscating the impact of the American System on regional development. Critics of Clay in the South and Midwest, for example, complained that the American System benefited the northeast to the detriment of their own regional development. The rise of Southern and Midwestern populists can be seen as a response to the excesses of the American System during the late nineteenth century.
The new American System takes the plight of struggling regions more seriously but still needs to consider how national policies continue to favor development in prosperous regions (with the West Coast now joining the Northeast) at the cost of struggling regions. With our agrarian past behind us, where can a new populist movement find guidance for these new problems? A particularly trenchant criticism comes from an unlikely source: economist and Nobel Laureate James M. Buchanan who recognized that economic development policy cannot be divorced from issues of federalism and public finance.
Buchanan is most famous for influencing a generation of conservative economists on the growth of Leviathan, the seductive power of deficits, and the benefits of constitutional constraints. This view neglects Buchanan’s pathbreaking work on fiscal federalism and the problem of regional fairness. Rediscovering the value of this work can provide us with new insights into how to craft a truly national economic system that leaves no regions behind.