Robert Reich seems to be a smart man. He served under three presidents, and now is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley. His video (below) says raising the minimum wage is the right thing to do. Unfortunately, he gets it all wrong.
Ignoring supply-and-demand analysis (which depicts the correct common-sense understanding that the higher the minimum wage, the lower is the quantity of unskilled workers that firms can profitably employ), Reich asserts that a higher minimum wage enables workers to spend more money on consumer goods which, in turn, prompts employers to hire more workers. Reich apparently believes that his ability to describe and draw such a “virtuous circle” of increased spending and hiring is reason enough to dismiss the concerns of “scare-mongers” (his term) who worry that raising the price of unskilled labor makes such labor less attractive to employers.
In 2012, nearly $39 billion was spared to American givers via the charitable tax deduction, $33 billion of which went to the richest 20 percent of Americans. If that sounds like a lot, consider that it’s associated with roughly $316 billion in charitable donations.
Yet for Professor Robert Reich, former Secretary of Labor under President Clinton, much of this generosity is not devoted to, well, “real charities.” His beef has something to do with the wealthy’s obsession with “culture places” — the opera, the symphony, the museum — realms that, in Reich’s opinion, are undeserving of what should be an allocation to his own pet projects. “I’m all in favor of supporting fancy museums and elite schools,” he writes, “but face it: These aren’t really charities as most people understand the term.”
The picking and choosing follows in turn, descending farther and farther into the typical terrain of progressive materialism — focusing excessively on surface-level transfers of this particular dollar into that particular hand and lambasting those rebellious Makers and Givers for getting it all wrong. (more…)
On the American Spectator, Acton Research Director Samuel Gregg examines the baleful influence exerted on economic thought and public policy for decades by John Maynard Keynes. Gregg observes that “despite his iconoclastic reputation, Keynes was a quintessentially establishment man.” This was in contrast to free-market critics of Keynes such as Friedrich Hayek and Wilhelm Röpke who generally speaking “exerted influence primarily from the ‘outside’: not least through their writings capturing the imagination of decidedly non-establishment politicians such as Britain’s Margaret Thatcher and West Germany’s Ludwig Erhard.” Perhaps not so surprisingly, many of Keynes’ most prominent devotees are also “insider” types:
The story of Keynes’s rise as the scholar shaping economic policy from “within” is more, however, than just the tale of one man’s meteoric career. It also heralded the surge of an army of activist-intellectuals into the ranks of governments before, during, and after World War II. The revolution in economics pioneered by Keynes effectively accompanied and rationalized an upheaval in the composition and activities of governments.
From this standpoint, it’s not hard to understand why New Dealers such as John Kenneth Galbraith were so giddy when they first read Keynes’s General Theory. Confident that Keynes and his followers had given them the conceptual tools to “run” the economy, scholars like Galbraith increasingly spent their careers shifting between tenured university posts, government advisory boards, international financial institutions, and political appointments — without, of course, spending any time whatsoever in the private sector.
In short, Keynes helped make possible the Jeffrey Sachs, Robert Reichs, Joseph Stiglitz’s, and Timothy Geithners of this world. Moreover, features of post-Keynesian economics — especially a penchant for econometrics and building abstract models that borders on physics-envy — fueled hopes that an expert-guided state could direct economic life without necessarily embracing socialism. A type of nexus consequently developed between postwar economists seeking influence (and jobs), and governments wanting studies that conferred scientific authority upon interventionist policies.
In the “Wealth Inequality Mirage” on RealClearMarkets, Diana Furchtgott-Roth looks at the campaign waged by “levelers” who exaggerate and distort statistics about income inequality to advance their political ends. The gap, she says, is the “main battle” in the Nov. 2 election. “Republicans want to keep current tax rates to encourage businesses to expand and hire workers,” she writes. “Democrats want to raise taxes for the top two brackets, and point to rising income inequality as justification.”
This is a constant refrain from the religious left, which views the income or wealth gap as evidence of injustice and grounds for reforming political and economic structures. In the video posted here, you’ll see Margaret Thatcher, in her last speech in the House of Commons on November 22, 1990, brilliantly defending her policies against the same charge.
Furchtgott-Roth zeroes in on a recent interview with Robert Reich, Secretary of Labor for President Bill Clinton and now a professor at the University of California, Berkeley.
[Reich said:] “Unless we understand the relationship between the extraordinary concentration of income and wealth we have in this country and the failure of the economy to rebound, we are going to be destined for many, many years of high unemployment, anemic job recoveries and then periods of booms and busts that may even dwarf what we just had.”
Mr. Reich is wrong. He and other levelers exaggerate economic inequality, eagerly, because they rely on pretax income, which omits the 97% of federal income taxes paid by the top half of income earners and the many “transfer payments,” such as food stamps, housing assistance, Medicaid and Medicare. This exaggerated portrait of inequality undergirds the present effort by the Democrats to raise income tax rates for people with taxable incomes of $209,000 a year on joint returns and $171,000 a year on single returns.
A more meaningful measure of inequality comes from an examination of spending. On Wednesday the Labor Department presented 2009 data on consumer spending, based on income quintiles, or fifths. This analysis shows that economic inequality has not increased, contrary to what the levelers contend.
Much of the discussion around this issue from the left uses the data to portray America as a heartless land of haves and have-nots. Here’s a quote from a Sept. 28 AP story on new census data, including income figures:
“Income inequality is rising, and if we took into account tax data, it would be even more,” said Timothy Smeeding, a University of Wisconsin-Madison professor who specializes in poverty. “More than other countries, we have a very unequal income distribution where compensation goes to the top in a winner-takes-all economy.”
Here’s an amazing statistic: The average 2009-10 faculty salary at Wisconsin Madison was $111,100. But the median household income for all Americans in 2007 (a roughly parallel comparison) was just over $50,000. Isn’t something out of whack here? Isn’t this evidence of severe economic injustice demanding structural reform? Sounds to me like the Bucky Badger faculty has been helping itself to second and third helpings at the “winner-take-all” buffet.
The faculty at Prof. Reich’s school do even better on average income: $145,800. I suspect some celebrity professors might even be … above average.
… recent events have added nothing that we did not know before or, more accurately, should have known as social scientists or otherwise as people attentive to empirical evidence. The crucial fact here, of course, is the vast superiority of capitalism in improving the material standards of living of large numbers of people, and ipso facto the capacity of a society to deal with those human problems amenable to public policy, notably those of poverty. But, if this fact had been clear for a long time, recent events have brought it quite dramatically to the forefront of public attention in much of the world, and by no means only in Europe. It is now more clear than ever that the inclusion of a national economy in the international capitalist system (pace all varieties of “dependency theory”) favors rather than hinders development, that capitalism remains the best bet if one wishes to improve the lot of the poor, and that policies fostering economic growth are more likely to equalize income differentials than are policies that deliberately foster redistribution.
[ … ]
… to opt for capitalism is not to opt for inequality at the price of growth; rather, it is to opt for an accelerating transformation of society. This undoubtedly produces tensions and exacts costs, but one must ask whether these are likely to be greater than the tensions and costs engendered by socialist stagnation. Moreover, the clearer view of the European socialist societies that has now become public radically debunks the notion that, whatever else may have ailed these societies, they were more egalitarian than those in the West: they were nothing of the sort. One must also remember that, comparatively speaking, these European societies were the most advanced in the socialist camp. The claims to greater equality are even hollower in the much poorer socialist societies in the Third World (China emphatically included).