Will America maintain these advantages? In his 1942 book, Socialism, Capitalism, and Democracy, Joseph Schumpeter warned that capitalism would decline and fail because the political and intellectual environment needed for capitalism to flourish would be undermined by the success of capitalism and by the critique of intellectuals. He argued that popularly elected social democratic parties would create a welfare state that would restrict entrepreneurship.
Although Schumpeter’s book was published more than 20 years after he had moved from Europe to the United States, his warning seems more appropriate to Europe today than to the United States. The welfare state has grown in the United States, but much less than it has grown in Europe. And the intellectual climate in the United States is much more supportive of capitalism.
If Schumpeter were with us today, he might point to the growth of the social democratic parties in Europe and the resulting expansion of the welfare state as reasons why the industrial countries of Europe have not enjoyed the same robust economic growth that has prevailed in the United States.What's wrong with Martin Feldstein's argument?
First, he defines national wealth based on real GDP per capita regardless of distributional effects. Biased and skewed away from distributed prosperity.
Secondly, he proposes no rigorous method for identifying causal factors, determining their relationships and priority of importance, and isolating confounding factors. Methodologically unsound.
Thirdly, it is blatantly political. A view of economics is used to promote a political viewpoint. Ideology rather than science.
He knows better. Fail. A grade for persuasion based on ideology though. It even appeals to authority (Schumpeter). And Feldstein is also using his own authority to persuade.
Harvard Business Review
Why the U.S. Is Still Richer Than Every Other Large Country
Martin S. Feldstein | George F. Baker Professor of Economics at Harvard University, and the president emeritus of the National Bureau of Economic Research