In the early days of the American republic, the Founding Fathers held competing economic visions for the nation’s future.

Thomas Jefferson, America’s third president, imagined a nation of farmers who were self-reliant producers, rooted in the land. “Those who labor in the earth are the chosen people of God,” he wrote. In contrast, Alexander Hamilton, the first U.S. secretary of the treasury, argued that robust financialization, manufacturing and trade would enable national growth and prosperity.

On the 250th anniversary of the nation’s founding, Hamilton’s economic vision appears to have largely carried the day.

The United States is now a global powerhouse built on capital, technological innovation and international markets. It produces a quarter of global economic output, making it the world’s largest economy. America’s average annual wage is the fourth highest in the world, while unemployment hovers at historic lows. As a testament to its reputation for opportunity, the U.S. receives more citizenship applications than any other nation.

Rise to Power

Such prosperity was neither accidental nor inevitable. Much of the country’s significant gains occurred during the 20th century — beginning with a push to educate more Americans beyond primary school, says Michael Droste, assistant professor of economics.

Starting in New England and then fanning out across the country, a community-funded “high school movement” built more schools, improved curriculum and upped enrollment for all teens, not just the small number expected to head to university. This increased the high school graduation rate from less than 10% in 1910 to nearly 75% by 1940, outpacing Europe, where secondary education at the time was more restricted. After World War II, the G.I. Bill sent unprecedented numbers of Americans to college.

Moreover, America emerged from the war with its industrial bases intact, unlike the majority of both its allies and enemies which had suffered heavy bombing. “These two factors put the U.S. in prime position to supply capital to the rest of the world for a number of decades,” says Droste.

From the 1950s until the 1970s, Americans enjoyed broad-based economic growth and improved living standards. Electrification, highways and air conditioning expanded the locations where Americans could live and work, fueling growth in regions such as the South.

“As productivity increased, real wages for working and middle-class Americans rose in tandem, on an almost one-for-one basis,” says Droste.

Outlook Uncertain

Today, those positive dynamics feel like a distant memory. America’s GDP remains the envy of the world, but fewer Americans are sharing equally in that prosperity. Net productivity has continued to trend upwards, but since 1980, hourly wages haven’t matched the rise. Pew Research Center found that purchasing power has hardly changed in 40 years.

The roots of discontent began at the start of the 1970s. By the time citizens were donning stars-and-stripes bell-bottoms for America’s 1976 bicentennial, major economic shifts that would transform the nation in the coming decades were already underway.

New trade agreements began sending jobs overseas, where pay was less and labor protections more lenient. This resulted in cheaper goods for Americans, but also drained employment opportunities.

Some industries, such as textile production and automobile assembly, were more affected than others. From 1979 to 2019, manufacturing employment fell by 35%. America’s once thriving industrial cities in the Northeast began corroding into the Rust Belt. It wasn’t just factory work that declined. The U.S. Bureau of Labor and Statistics found that between 2006 and 2014, call centers outsourced 200,000 jobs overseas.

Those in knowledge economy jobs and technical roles such as computer programming have had better luck, Droste notes, but the globalization that first ate away at blue collar jobs could now be threatening these sectors as well. “My worry is that, since so many white-collar workers now work remotely, they’re exposed to much stronger competition from abroad given that their jobs can be more easily outsourced,” Droste says. Artificial intelligence, too, seems increasingly poised to reduce these positions, particularly those at entry-level.

America’s rising overall wealth also began to decouple from the average American’s bank accounts. Since the 2000s, strong GDP growth largely boosted capital income such as stock portfolios rather than individual wages.

An aging population living longer and drawing more benefits over time, coupled with fertility rates below replacement level, spells trouble for future tax revenue. The U.S. is already grappling with a national debt of about $39 trillion.

Such facts might be daunting, but there’s still room for optimism. After all, the U.S. has weathered the Great Depression, world wars, a cold war, several pandemics and multiple recessions in its 250-year history. A bet against America has never been a safe one.

Meet the Jeffersons

For some economists, such as Matthew Kahn, Provost Professor of Economics and Spatial Sciences, recent technological advances signal opportunity, not despair.

AI’s ability to code and perform other complex tasks enables people to build a business on a budget, Kahn argues. More workers can become self-employed, freeing themselves from economic reliance on large corporations. “Remote work technology combined with access to AI will allow more Americans to start their own businesses and compete online for market share,” he says.

Work from home capabilities, the increasing number of air travel routes from smaller metros to large cities, and the rise of autonomous vehicles — which can function as mobile offices — give people more choice in where to live. Families are free to move away from more expensive cities and reinvigorate the rural areas Jefferson prized.

In a sense, it’s a revival of the Jeffersonian principles of fiscal independence and domestic productivity. The Jefferson household of the future would still be rooted in home-based enterprise but one that would require high-speed internet instead of a plow.

These technological advances can also help with other challenges. Kahn’s research suggests that work-from-home policies may lessen the “motherhood penalty,” in which women with children tend to have lower rates of employment. When offered more opportunities to work from home, mothers’ employment rates tend to rise.

Work-from-home policies may even boost fertility. A recent Stanford University working paper found that parents who work from home at least one day a week tend to have enough additional children, on average, to reach replacement-level fertility.

Pairing fertility increases with continued immigration can help ease the imbalance between federal spending and revenue. Maintaining a robust pool of workers to provide taxes is essential to funding benefits, such as Social Security.

Immigration can be a divisive subject. Research by Morris Levy, associate professor of political science and international relations, found that emphasizing requirements such as background checks, employment and language skills significantly increases support for policies that back new arrivals.

An openness to immigration aligns with Jefferson’s principles. He was enthusiastic about immigration and advocated a speedier path to citizenship for skilled workers.

Hamilton disagreed, as he did with many of Jefferson’s opinions. Their dynamic highlights a great American tradition, one that should fortify our optimism for the future.

In his first inaugural address in 1801, Jefferson noted the “contest of opinions,” that guided the formation of the Constitution. Debate on the best path forward for America is just as animated today — a spirit that is alive and well in USC Dornsife’s economics department. Kahn might be an enthusiast of telework, for instance, but Droste has reservations.

Such intellectual differences are not a problem, both scholars agree — they are a quintessential element of the American democratic experiment.

The only requirement is that we remain open-minded enough to listen to all sides.