Sam Hammond and Brink Lindsey on *Faster Growth, Fairer Growth: Policies for a High Road, High Performance Economy*

Episode Summary

Executive Summary: Brink Lindsey and Samuel Hammond outline the Niskanen Center’s “free market welfare state” vision: pair stronger social insurance and state capacity with pro-market reforms to boost inclusive growth. They argue U.S. stagnation stems from both structural limits and policy failures, and propose modernization in welfare, labor markets, housing, healthcare, innovation, climate, and development policy.

Main Topics: Niskanen synthesis and institutional vision (Priority: 5/5): The guests define their middle path between pro-market and pro-government ideologies: markets and government are complementary institutions that both require high-quality governance. The Niskanen Center aims for transpartisan policies that appeal across the left-right divide without forcing compromise on core values. Diagnosing U.S. stagnation and inequality (Priority: 5/5): They argue slower growth, weaker dynamism, and rising inequality are driven by both natural economic headwinds in an advanced economy and policy failures, including captured sectors and dysfunctional public systems. This combination worsens geographic and socioeconomic divides. Supporting workers, families, and social insurance (Priority: 5/5): The paper proposes modernizing unemployment insurance and tax administration, expanding active labor market policy, and replacing the constrained child tax credit with a child allowance to reduce child poverty while supporting work and family stability. State capacity and social infrastructure (Priority: 4/5): COVID revealed broken administrative infrastructure in unemployment insurance and tax delivery. They argue social insurance should be treated like public infrastructure, with investment in technology, staffing flexibility, and better systems to deliver benefits reliably during crises and normal times. Reviving innovation and dynamism (Priority: 5/5): They advocate carbon pricing, more federal R&D, more experimental funding structures, immigration, and better support for high-risk research. The goal is to redirect innovation toward productivity growth and socially beneficial technologies while correcting market failures. Development policy and industrial policy (Priority: 4/5): The guests reframe industrial policy as a broader development strategy: government inevitably shapes economic structure, so policy should favor productive diversification, regionally balanced growth, and high-value sectors rather than picking firms or subsidizing entrenched interests. COVID, climate, and political urgency (Priority: 4/5): They see the pandemic, climate change, China’s rise, and democratic dysfunction as shocks that expose the costs of complacency and create momentum for reform. These pressures may finally force action on state capacity and growth-enabling policy.

Key Arguments: U.S. politics should move beyond the false choice between pro-market and pro-government; strong markets and strong public goods reinforce each other. Slower growth is partly structural in an advanced economy, but policy errors have made the stagnation and inequality far worse than necessary. Modern social insurance should be designed as public infrastructure: digital, flexible, and capable of handling crises without collapse. A child allowance is both pro-family and pro-work because direct cash support reduces stress, stabilizes households, and can help low-income parents enter or stay in work. Active labor market policy and work-sharing can make the labor market more adaptive, especially after pandemic-driven reallocation shocks. Housing and healthcare are major sources of wasted output due to capture, barriers, and regulatory dysfunction; reform there could materially raise growth. Innovation policy should include carbon pricing and robust public R&D because private firms underinvest in basic, long-horizon research. Industrial policy is unavoidable in practice; the real question is whether government steers resources toward productive diversification or toward rent-seeking and stagnation. Government research funding should be made more experimental and less bureaucratic, using models like DARPA and even lotteries for some grant allocation. A more diversified economy would support not just GDP growth but also geographic balance and political stability.

Data Points: Real GDP growth on trend in the 20th century: about 2% per year - Used as a benchmark for long-run U.S. growth performance Real GDP growth in the 21st century: a little bit more than 1% per year - Describes recent U.S. growth slowdown Potential growth gain from policy reform: tenths of a percentage point up to an additional 1 percentage point - Illustrates how reforms could roughly double current trend growth Housing misallocation cost: 9 percentage points of GDP per year - Attributed to Enrico Moretti’s research on housing and spatial misallocation U.S. healthcare spending: 17% of GDP - Current level cited as far above peer nations Comparable healthcare spending target: 9-10% of GDP - Illustrative reform benchmark implying large fiscal and growth gains Engineer effort for Moore’s Law: 18 times as many engineers - Charles Jones and Nicholas Bloom example showing innovation is getting harder Time spent by researchers on compliance: about 40% - Cited as time consumed by bureaucracy instead of research Child benefit impact in Canada: about 7 cents on the dollar reduction in alcohol and tobacco consumption - Used to argue cash benefits improve household stability rather than just fueling vice R&D proposal experiment share: 10% of an agency budget - Suggested amount to set aside for trying new funding approaches and peer-review systems Top grant pool concept: top 40% of ideas - Lottery-based funding model described for innovative grant allocation United States child poverty comparison: one of the highest rates in the industrial world - Used to justify child allowances

Pivotal Quotes: "We need greater reliance on entrepreneurship and competition, and we need more robust provision of social insurance and other public goods. In other words, we need a free market welfare state." — Transcript quote from Brink Lindsey / report framing: Defines the Niskanen synthesis and core ideology of the report "The reality is when you have well-functioning governments, you also have well-functioning markets." — Brink Lindsey: Explains why the center sees markets and state capacity as mutually reinforcing "Industrial policy is like tax policy. Everybody's got one." — Samuel Hammond: Reframes the industrial policy debate as unavoidable and focused on quality rather than existence

Implications: The report argues that future U.S. prosperity depends on rebuilding state capacity, modernizing social insurance, and using policy to unlock—not constrain—market dynamism. For business and policymakers, the message is: reform institutions, reduce capture, and invest in growth-enabling public goods.