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Wednesday, October 9, 2013

Robert Reich--Interview at Spiegel

Spiegel Online has posted an interview with Robert Reich, a left-wing economist and secretary of labor under Pres. Clinton. As expected, Reich trots out the liberal polemic that we must tax and spend our way to prosperity, attacking the Tea Party. In the latter regard, he says:
The members of the Tea Party are much more radical and extreme [than the Republicans that opposed Clinton in 1995]. Some of them really have contempt for the entire process of government. They're followers of people who say that we ought to shrink government down to the size that it can drown in a bathtub. They hate government viscerally. They're not in Washington to govern; they're in Washington to tear it down.
He also refers to the Tea Party as "extortionists." Reich has started with a basic truth--that the Tea Party doesn't agree with the crony-capitalists and statists that bigger government is better government--and twists that into some anarchist type plot to "tear down" Washington. It is this refusal to recognize a disparate view of government as legitimate that is driving the current Democratic refusal to negotiate.

This is not to say that everything Reich says is wrong. For instance, he correctly notes:
... [W]e have an economy where the median household has got to face the reality that wages are actually declining in real terms adjusted for inflation. The second reason has to do with the direct consequences of wealth in politics. The super-rich not only poured their money into politics directly but poured money into think tanks and public relations campaigns.
 He also correctly notes that:
In the first three decades after World War II, US top tax rates on the wealthy were never below 70 percent. Under President Dwight D. Eisenhower, it rose to 91 percent. And the economy grew faster in those years than it has grown after President Reagan radically lowered taxes on the wealthy, partly because we heavily invested in infrastructure and education back then, which is essential to economic growth.
 I also agree with him that there needs to be a separation between investment banks and commercial banks; and that the Obama administration has been too cozy with Wall Street.

However, Reich fails to examine the underlying causes. Why are the super-rich pouring money into politics? Because it nets them a very good return on their investment. They actually can make more money by manipulating laws and regulations than on investing in new business and technology. Why are they able to do this? Because the government has become so pervasive a force in the economy. If the government were smaller and more constrained (as advocated by the Tea Party), there would be less incentive for the super-rich to game the system because they wouldn't see the return on their investment.

Reich talks about the economic growth in the 1950's and taxes. There are several problems with his argument, not the least is that this is not the 1950's where the United States was the only major industrial nation that was not devastated by WWII, and therefore in a unique position to enter a manufacturing boom during Europe's and Japan's reconstruction.

However, even the tax issue doesn't stand up to scrutiny. First, even though the marginal tax rates were high on the wealthy, the middle-class paid very little or nothing in taxes. Second, the wealthy enjoyed numerous loop-holes, so they didn't actually pay as many taxes as Reich suggests.

Finally, the reach of the federal government--and state governments, for that matter--was much more limited and narrow then. The very things which the Tea Party dislikes about the federal government now did not exist in the 1950's.

Reich discusses the investment in infrastructure and education in the past. Its true, we don't have that now. Obama piddled away the stimulus: he didn't invest in infrastructure spending because the feminists complained it would benefit men over women, and what little he did spend went to the wrong type of infrastructure. In the 1950's, roads and highways opened up commerce and reduced costs, while dams provided the power. Today, pipelines and increased oil and gas drilling would stimulate growth by producing products, jobs, and reducing energy costs. Increased space development would drive many fields. However, these are all things that the Administration has neglected or outright opposed.

Education in the 1950's meant hiring more teachers to teach useful skills and modern schools conducive to learning. But instead of that, we get more government interference in what schools should teach, and a learning environment strangled by political correctness. While colleges are laying off professors, they are increasing the number of diversity administrators. Schools and colleges have become hostile to boys, driving them away from education.

Reich complains that incomes are stagnating. But why? Could it be because a lot of the middle-management and clerk jobs that paid better wages have disappeared? Could it because a lot of the manufacturing, mining, and timber jobs that paid better wages have disappeared? Some of this is due to technological advancements. Let's face it, some jobs are gone forever, just as the invention of automobiles doomed the manufacturing of buggy whips. But some jobs have disappeared because the government (there is that word again!) have forced entire industries out of business and overseas, and made it too difficult for businesses to start up--whether it is costs and regulations associated with starting (or maintaining) a business or that the new bank regulations make it impossible for an entrepreneur to borrow start up capital.

Finally, why does Reich compare the Reagan economic growth to the post-WWII growth? Rather, let us compare the Reagan economic growth to that under Jimmy Carter, where it was clear that liberal economic policies had failed.

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