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American Exceptionalism, Economics, and the American Dream

American Exceptionalism, Economics, and the American Dream

American Exceptionalism is not a new concept, but it is a term that we often hear during election time as each politician tries to describe what is wrong with America and how to fix it.

American Exceptionalism is defined as being the global defender of liberty, democracy’s greatest global example, and home to the brave who are willing to defend people without our values.

While Ronald Reagan is the only US president in the last 82 years to use the term American Exceptionalism in his “shining city upon a hill” speech, the term has become embedded into our political narrative. In his State of the Union address, President Obama talked about the things that “set us apart as a nation” and described America as “not just a place on a map, but the light to the world.” Thomas Jefferson’s “empire of liberty” and Theodore Roosevelt’s “arsenal of democracy” are different versions of the same theme.

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But how does this exceptionalism translate into the economy of America? Let us start by considering a few theories on America’s economic development.

Religious Theory

The most prevalent theory is based on America being a Christian society. This theory holds that because of the founding religious beliefs, America was better able to develop economically and wealthier than countries with other religions. The problem with this theory is that there are many other Christian societies around the world that have not fared as well economically. And although America considers itself a bastion of freedom of religion, the reality is that this is only partially true as there was no actual separation of Church and State for most of America’s first 100 years. There were official religions in each of the colonial States, though. For example, the Massachusetts State Constitution from 1780 through 1833 specifically stated that Protestantism was the official State religion.

Natural Resources Theory

The second most important theory is that America has an abundance of natural resources, unlike countries that continue to be undeveloped. Natural resources like water, forestry, farmland, and, most important, people who were willing to work hard are just a few examples. The basic premise is that the American people—being a melting pot of foreigners looking for a better life—took the opportunity to make something of their lives and continued to work at bettering themselves. But America is not the only new country with abundant resources or a melting pot of immigrants.

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Law and Economic Policy in America Theory

America, at the turn of the 20th Century, like many undeveloped countries of varying religions and natural resources of today, had almost no middle class. In the late 1800s and early 1900s, most Americans worked in manual labor or farming, had very little education, and were, for lack of a better word, poor. At the turn of the century, if you were unemployed and landless, you had real problems. There were no social safety nets and education was out of reach for all but the most privileged. The American Dream was often surviving great hardships. During this period in our history, the term “Robber Baron” became synonymous with Americans that became wealthy through the exploitation of natural resources, government influence, low wage scales, ethically questionable tactics, and lack of laws to deal with complex legal issues. At the turn of the century, early forms of conglomerates in the trusts allowed for monopolistic power and the driving out of small businesses.

It was precisely because of the concentration of economic wealth and power that the Sherman Antitrust Act was enacted. The Sherman Antitrust Act was a law designed to shape the economic life of a large complex society by maintaining the “correct” level of competition in the economy. The law had its roots in English and American common law, and very little of its language was rooted in religious doctrine.

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America’s Exceptional Period

If someone were to pinpoint when America was truly “great”—when our shining moment was, at least economically for the middle-class – the pin would rest in a time that spanned the 1970s to the late-1980s—a when there was the least concentration of wealth. Ironically, it was during this period of American history where tax rates were the highest when education was relatively inexpensive and massive student debt did not exist, and when buying a product on credit meant layaway and not credit card debt. Most in the middle class even expected to pay off their homes in their lifetime, and have enough in savings for their retirement. What’s occurred since then is complex to describe and even more complex to fix. While America is simultaneously experiencing some of the highest stock market index numbers, lowest unemployment rates, and most significant GDP growth in a long time. It is because of this change in the wealth in the middle class that many Americans have a negative perception of our economy and consequently believe a lot needs to be “fixed.”

True Economic American Exceptionalism

Economic policy debates are often grounded within the conceptual restrictions of a state-market separation, as though the two exist in isolation. If we then consider what is truly different in America, it is the economic creation of a middle-class, as well as the pulling of millions of Americans out of poverty through the “correct” level of competition that started with the Sherman Antitrust Act and has since been followed by thousands of laws designed to ensure fair competition.

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There are endless examples of Christian countries with ample natural resources around the world where it is still nearly impossible for someone to pull themselves out of poverty through sheer work or effort. True Economic American Exceptionalism is the ability for any middle-class American to create their own future, feel secure in the protection of anti-competitive laws, and work toward their own American Dream.

Dr. Alfred Sanders is a professor of finance at the Jack Welch Management Institute, and a Partner, Capital Markets Consulting at Genpact.

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