Friday, April 6, 2012

Robert Reich in a nutshell

I've mentioned the erstwhile former Secretary of Labor--Mr. Reich--before, noting that his grasp of economics is very much like that of an undergrad just starting an Introductory to Macro class. His latest piece at HuffPo suggests he still hasn't finished that class. It is--if possible--even worse than the previous one.

He tosses out some figures in an apparent attempt to lay the groundwork for his big conclusion, but along the way Reich actually says something very true and very significant, though he doesn't seem to understand what he has said:
The economy has been growing but almost all the gains have gone to the very top. As I've noted, this is the most lopsided recovery on record. 
You will hear other theories about the hiring slowdown, but they don't wash. 
It's not due to "uncertainty" about the economy. That's a tautology -- the economy's future is always uncertain, especially when consumers don't have the dough to keep it going.
See that last bit? "The economy's future is always uncertain." That's true. But in a moment, we'll see how little time it takes for Reich to forget the only valid point he makes.

With the groundwork in place, he lays it on the line:
But when it comes to explaining what's really wrong with the economy, Romney is the perfect foil for Obama because Romney represents the richest of the rich -- a man who raked in more than $20 million last year, and paid a tax rate of just 13.9 percent (lower than much of the middle class). 
He made that money by buying up "under-performing" companies -- that is, companies that employed more people than they needed to, and carried less debt than was necessary to show big profits (interest on debt is deductible from company income). Romney's firm, Bain Capital, made him and his colleagues fortunes by firing workers and loading companies up with debt. 
And there's America's economic problem in a nutshell.
There it is! Our economic problems "in a nutshell!" And what is that nutshell? Well apparently, it's...capitalism? That or it's Romney and Bain Capital, all by themselves (a pretty heavy load to drop on someone, making them solely responsible for all of America's economic problems).

Forget Reich's faulty generalizations about Romney and Bain Capital for the moment, however, and concentrate on the implications of his capitalism nutshell: what Reich is saying is that income inequality is--itself--a cause of economic woes, that if there wasn't so much income inequality all would be well.

And when--exactly--was there less income inequality? Well, how about during the Carter years? In this WSJ article, the real causes of income inequality are addressed and the authors open with the following salient observation:
In the stagnant days of the Carter administration, when inflation was approaching 13.5% and interest rates were peaking at 21.5%, income was more evenly distributed than in any period in 20th-century America. Since the days of that equality in misery, the measured income of the top 1% of income tax filers has risen over three and a half times as fast as the income of the population as a whole.
That's right, we had  less income inequality in the days of Carter (and Nixon). We also had runaway inflation, stagflation, a misery index, and gas lines, to name just a few of the highlights. What brought us out of that period? Capitalism. More open markets, fewer regulations, lower taxes on things like capital gains--which Reich wants to raise--which freed up capital for investment and growth. From Reich's first piece I linked to:
To pay for this, raise taxes on the super-rich. It's only fair. Never before has so much income and wealth been concentrated at the very top, and taxes on the top so low. Go back to the 70 percent marginal tax we had before 1980. And include more tax brackets at the top. It doesn't make sense that any income over $375,000 is taxed at the same 35 percent, even if it's a billion dollars. And tax all sources of income at the same rate, including capital gains.
Those are Reich's words. He wants the seventies, all over again. But somehow--in Reich-land--returning to the previous rules will lead to prosperity. And there's the nutshell that is Reich's ignorance: he not only believes he can predict the future of the economy--based on following his prescriptions to fix it--but he believes that this future will be exactly what it was not in the past, when his prescriptions were in place. In other words, he believes he's right, regardless of the empirical evidence that proves he's wrong. For him--and many others--facts are not things to consider, they are things to ignore.

Cheers, all.

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