Former Secretary of Labor Robert Reich recently contributed this confused and confusing op-ed to the New York Times. Here’s the letter that I sent in reply:
At least a full-sized
op-ed is required to address the many wrong-headed presumptions,
factual errors, and non sequiturs that mar Robert Reich’s "Totally
Spent" (February 13). The most blatant mistake, however, is Mr.
Reich’s assertion that women entering the workforce, and people working
longer hours, are examples of how Americans "live beyond their
paychecks."
When more family members work, and when those who
work do so for more hours per week, families’ paychecks increase.
Working more might be good or bad – it might be evidence of underlying
economic problems – but it emphatically is not a means of living beyond
a paycheck.
Sincerely,
Donald J. Boudreaux
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Reich's editorial is indeed a mess.
The 'point' that stood out the most to me is how Reich stressed how Americans have spent (personally) beyond their means, and that this problem has been mounting for decades. So he proposes government action (what else?) to correct the problem, in the form of a larger earned-income tax credit while increasing the taxes on high earners.
Yes, the same government that has lived beyond its means in such a gross manner that it has run up roughly $40 trillion in debt when all the unfunded future, promised payments are taken into account.
If indeed Americans have to accept a lower standard of living, as he asserts (and doesn't that sound like Krugman writing about how we must learn to live with diminished expectations?), I'd point to the $40 trillion national debt as a bigger factor. And, based on the proposed programs of the Presidential candidates, that number is going to increase even further in the coming 4+ years.
tw, I think the governmental figure is around $60 trillion.
I get a kick out progressive editorials. No matter where they start they always end up with same conclusion. The rich have too much money and the problem in paragraph one, whatever it is, can be easily solved by higher taxes on the rich.
One way to know when someone is lying is when they make brazen unsubstantiated claims that create false dichotomies and include the word "only" like this one…
"The only lasting remedy, other than for Americans to accept a lower standard of living and for businesses to adjust to a smaller economy, is to give middle- and lower-income Americans more buying power — and not just temporarily."
Fear-mongering that would make Bush Co. proud.
It seems neither Jay nor Jason understand basic Economics 101.
What Reich meant by living "beyond their paychecks" is that one paycheck isn't enough to cover one's wants, so technically speaking it is indeed inaccurate because by working more hours one is still living within one's paycheck. This is a minor point. The larger issue is whether or not it is good or bad to want more out of life. Reich's assertion seems to be that we should get more while not putting out more. However, not many reasonable individuals can honestly say that we are entitled to more in life without putting in more work. It seems more fashinable to say that the government owes us more and more to maintain the status quo.
ALL proposals imply government action. Government action makes sense. It makes people feel cozy and protected. It gives them a chance to eat away at the rich.
The result of all of this? It will demand giving more power to the bureacrats. It will produce the exact opposit of what it intends, thus calling for more … government action!
What we out here in hayekland don't understand is that if we don't step INTO this vicious circle we'll miss out on the only thing that's gonna be left real soon: government jobs!
Where do I aply?
Fabio:
Yeah lets throw away our self-respect and all become government workers.
"Over the longer term, inequality can be reversed only through…"
It seems the real problem comes at the end of the essay. Living beyond paychecks is not the problem, inequality is the problem.
It exposes the basic difference between conservative and liberal mindsets to see that Reich admits that wanting more and being willing to work/produce for your fellow man is a bad thing. However, confiscation of money from the wealthy (use your own definition here) is a good thing. Not in my world, thank you.
My question for Reich would be: do you really believe this stuff you write?
I think there may be two things in the essay that make sense.
1) Much of the temp. tax cut will be saved, not spent. The macro lit puts the MPC of a temporary tax cut at about .3.
2) Rich people and corporations will put there money where they get the highest (risk adjusted) return.
Neither of these two things have anything to with Reich's point though.
Reich should be thankful he lives in a country where someone can spout nonsense and get paid for it. Most of us in the US are so rich, we don't really care what's in the NY times.
The fact that Reich is able to exist doing the work he does is the best evidence I've seen today that things must be pretty good in the US.
If things were not going well, Reich would have to ante up and get one of the dirty manufacturing jobs he wishes the rest of us could get.
Hard working middle-class Americans are getting what they deserve (more hours for the same pay) while the rich bankers, the Wall Street gang and financiers who basically use the fed, monetary policy and the treasury to confiscate a greater and greater portion of the productivity pie while actually contributing nothing to it obviously have earned all their wealth?
You guys actually believe your own bull crap?
How well would these financiers be doing had the fed ignored Wall Streets howling cries to drop interest rates and to give them an infusion of billions and billions of dollars of freshly printed money to bail them out???…once again while the liability falls on the average American worker and tax payer???
Some one please answer that for me…
Are you guys all Wall street drones, Hedge fund "managers" and bankers? Or have you just tied your lot to an unyielding ideology that sounds good in principle?
Here's Jim Kramer of Mad Money crying and making all of Wall street look like the desperate greedy hypocritical welfare fools they are.
Reich's column was right on and explains why income and wealth inequality matters.
One, the economy doesn't do well when most people have no money left to spend and two it's almost all a result of artificialities created by manipulation of the money system and has little to do with who produces and contributes to the real economy.
I suppose he's discussing the 7500 people who lined up for 350 jobs at WalMart in Atlanta.
Muirgeo,
"Reich's column was right on and explains why income and wealth inequality matters."
If the progressives wanted to solve the "problem" of income and wealth inequality they could easily do so. With a three trillion dollar annual budget they could instantly make every poor person in America a member of the middle class. But they haven't. They've been in charge for over a century and they haven't solved the "problem". Why not? My theory is that it is because they don't want to. That they'd rather manipulate people than just give them money and let them make their own decisions. That what they really want is the revenue stream and the votes and that actually solving the problem would cost them both. What's your theory?
It's bad enough that trolls get a response at all here on the board, but to deliberately link to a troll so we can have a discussion about his dribble is pathetic.
Americans now days are tending to spend more then what their earning. Credit companies, banks, lending institutions have made it easy to borrow money. Americans have to learn that they can’t live above their pay grade. If they feel the need to live a better life its up to them to improve their situation, not the governments. As Reich said about tax incentives are only a short term solution. After the effects wears off, the same issue will have to be dealt with. Reich argument about how only a certain number of women can work in the work wasn’t relevant to the topic at all. If the women decided to work in conjunction with there spouses, all that is just adding more income to the household. To me liking beyond your paycheck spending more then you earn. People who live in that really big house, have those cars they can afford, spending money on “wants” instead of needs have a problem. For a while now more people found it’s easier to get father into debt, then to try and fix the problem. We all have seen those ads on TV, for easy cash, payday advances. The next few years are going to be hard for many Americans. As they learn to coup with less income and limit their spending. It would be nice if the government lowered inflation and raised minimum wage that would help a lot of people transition. The people who complain or comment how Wall Street and bankers are part of the problem, seem to me are just looking for a scapegoat. There is a reason they have a lot of money, they are smart enough to figure out how to manage it.
This topic is very similar to what Dr. Schmidtz a professor oh economics at UofA came to my school to speak about. I learned a lot from that speaker about the real world and the impact we all have on the economy. I found it highly interesting when he said “ the greatest contribution a single person can do is to show up to work and make a difference to all those people.” It kind of makes you think about how powerful each person is and that things can change if each of us made a difference just at our jobs.
Do you personally think working more might be good or bad?
Americans are fat, lazy and greedy. They all live on credit, are all in debt WAY beyond their means. This house of cards will come crashing down sooner or later.
Martin, those 350 people who do get a job will be VERY happy campers!
and two it's almost all a result of artificialities created by manipulation of the money system and has little to do with who produces and contributes to the real economy.
And the cost of empire and entitlements have NOTHING to do with it.
The people who complain or comment how Wall Street and bankers are part of the problem, seem to me are just looking for a scapegoat. There is a reason they have a lot of money, they are smart enough to figure out how to manage it.
Posted by: Mike
Boloney Mike,
The people on Wall Street and the Bankers have the privilege of the backing of the US treasury and the Fed. They should NOT be allowed to manipulate the unsuspecting public with every sort of complicated loans and finance product. The products they offer as a result of backing by the US government need to be tightly regulated and if they want to offer their own brand of snake oil not backed by the US taxpayer and the US government they can do it on their own and take all the risk and losses on their own.
I completely agree with this. They should *NOT* be allowed to do that. Using their power to wealth to buy politicians to do their bidding is a huge problem. So, it's strange to me your remedy for this situation:
So your solution to corrupted government is more government? It seems to me that if the government weren't there to set up the preferred legislation in the first place, the corporations that exploit the government would have no one to bribe. Instead, they'd be forced to survive by providing for their customers needs.
Your prescription seems exactly the sort of thing that would make worse the problem you seem to want to fix.
mjh,
Don't be ridiculous. We have to have a monetary system. How to properly set it up and regulate it is the problematic issue.
So, Muirgeo, you're not going to answer my question? I guess that's no big surprise. But seriously, if your own people have no interest in actually solving the "problem" of inequality, I see no reason why you should be here bugging libertarians about it. Your people have been given (or taken) more than enough money to solve the "problem" but they don't do it. If you don't know why, I suggest you ask them.
Jennifer,
Ayn Rand said it in a more succinct fashion.
She said, in answer to the question of what do we do about the poor, "Don't be one".
That's irrelevant. 7500 people standing in line for 350 jobs at WalMart is evidence of something. If 7500 people stand in line for 350 bowls of soup at a soup kitchen or 350 tents at a refugee camp, the 350 are also very happy. Ignoring the other 7150 doesn't make them go away. Denial doesn't change anything.
I don't think need or desire for more money was the only, and not necessarily even the prime, motivation for women entering the workforce in larger numbers during the sixties. I think that feminist propaganda about equality demanding that women work and at the same wages as men was a huge motivation for a lot of women.
My first wife was an excellent example of this, and she certainly wasn't the only one in my experience.
Reich addressed the "earned income credit" in the income tax system. This is nothing more than welfare going in through the back door and should be canceled in its entirety.
Workers already have the right to form unions by a majority vote, secret ballot, it isn't the majority vote that Reich wants it is doing away with the secret part so the union goons will know who to intimidate and coerce. The very fact that unions don't control all our business facilities is the reason that America is so dynamic in its production.
*How unions get between you and what you want:
((Union goon at a conference in Las Vegas decides to visit a local brothel for some secret fun. He goes into the first one and asks the madam what the charge is and if her brothel is a good union shop. The madam says "$100" and no of course not. The union goon asks, "well what cut do the girls get and what cut does the house get?" "$80 to the house and $20 to the girl" says the madam. The goon snorts his disgust and leaves to search for the right brothel.
After many efforts he finally winds up in a place wher the madam replies that yes her borthel is orgainized as a good union shop. "Great", says the goon, "what is the split between house and girl?" The madam tells him that she gets $20 and the girl gets $80. Wonderful the goon says and looks around and see a gorgeous blonde, "I'd like to spend time with her."
"I bet you would" says the madam, "But this is a union shop. Ethel here", she points out a 97 year old wasted figure in a nightie, "has 66 years seniority and she is next."))
Government should not in any way be between an employer and an enployee when it comes to decision making. There are criminal laws to evoke if an employer does something criminal.
First the socialists screw up the school system with their unions which screws up the product (educated children), and Reich's solution is more. bigger, and more expensive editions of the same. God save us from the stupid!
""These measures are necessary to give Americans enough buying power to keep the American economy going. They are also needed to overcome widening inequality, and thereby keep America in one piece."" Robert Reich.
I agree with the ones above that come down on cutting government spending. People who send less to government have more to spend on themselves…….duhhhh!
muirduck reminds me of the black woman I heard on a Pacifica Radio station program, who was lamenting the fact that her day care/pre school center was struggling. She told the interviewer, "I can't understand why no one will "invest" in my non-profit." Of course the interviewer, being a leftie, agreed it was tragic.
Only people like muriduck can believe that people "invest" money in something that makes no profit.
I felt like reaching through my radio and grabbing both of them by the scruff of their necks and telling them, "ask for donations, ask for charity, ask for volunteers, but for God's sake, stupid, don't ask for investments!"
Martin,
I'm not sure what the something is that you think applications for Walmart jobs is evidence of. The company I work for often gets 50 or more applications for a new job posting. The people who apply are generally just trying to better their circumstances. I see no reason to think that the people who apply for Walmart jobs are any different.
It's evidence of 7500 people lining up for 350 jobs at a level of income that hasn't changed in 35 years.
So lots of people hope to better their circumstances with these jobs at WalMart.
I don't either. What you're saying is obvious, and it simply ignores the point. The point is that 7500 people standing in line (not just emailing applications) for 350 jobs at this level indicates a scarcity of other opportunities.
Reich doesn't effectively address the issue either, because he belongs to an increasingly entitled class himself. The issue is increasing entitlement of relatively few people to raise rents on many others. The accelerating divergence between the income of Federal employees and other employees, and the income of CEOs vs. other corporate employees and the income of current GM workers vs. future GM workers, is only the tip of this iceberg.
So, Muirgeo, you're not going to answer my question? I guess that's no big surprise. But seriously, if your own people have no interest in actually solving the "problem" of inequality, I see no reason why you should be here bugging libertarians about it. Your people have been given (or taken) more than enough money to solve the "problem" but they don't do it. If you don't know why, I suggest you ask them.
Posted by: Randy
I must have missed the question. Bottom line is history and their actions show that democratic policies in the past have been much more equitable. In the 40's through the 70's the income gap was more like 40:1 rather then the present 350:1 for CEO wage to average worker wage. And guess what the economy was as strong as ever relative of the rest of the world at those times.
Even during Bill Clintons 8 years we saw reversals of wage gap while the economy boomed.
Martin,
"The point is that 7500 people standing in line (not just emailing applications) for 350 jobs at this level indicates a scarcity of other opportunities."
I disagree. I think it indicates that Walmart offers better opportunities for these particular 7,500 people than their current situation offers them. Meanwhile, thousands of jobs go unfilled because no one with the right qualifications can be found to fill them. What we have is not a scarcity of opportunities, but a scarcity of people willing to put forth the effort necessary to prepare themselves for the opportunities that exist.
Muirgeo,
"In the 40's through the 70's the income gap was more like 40:1 rather then the present 350:1 for CEO wage to average worker wage."
You're missing the point. Your people have have been given enough money to give every poor single person in America $30,000/yr. That would be $60,000/yr for a couple, or $120,000/yr for a family of four. They've been given enough money to do this, but they haven't done it. So why should I take the chatter about "inequality of income and wealth" seriously? Its clear that your people want more money, but they have given no reason for anyone to believe that they will use it to solve the problem they claim they need it for. They've been in power for over a century now and they haven't solved it yet. And I'll bet you a dollar against a dog turd that even if all your best people hold all the major offices that they won't solve it then either. Again, my theory is that the reason they don't solve the problem is because they don't really want to solve it. What's your theory?
who cares if income hasn't changed in 30 or even 300 years. income means nothing. what you can buy with your income is the important part. my dad bought his first car many moons ago for $300. adjust that for inflation and it comes to about $1400 today. i think i'd go for a $1400 car today than a $300 car forty years ago. both the same price and all with no income change! yay! of course, this is just anecdotal evidence… but so is your life.
Income means something, and the point is not simply that real median income hasn't risen in 35 years. The point is that while real median income hasn't risen in 35 years, real per capita GDP has risen, and incomes at higher incomes have also risen. The income of Federal employees reflects the rise in per capita GDP that median income does not reflect. Federal income and private sector income has diverged, and the divergence is accelerating. Ignoring this fact doesn't address it. Titling it "fair" doesn't address it either. It's fair. It's right, just, proper and noble too. It couldn't be anything else. because statesmen define these terms.
You say you disagree, and then you repeat what I said in different words.
These aren't jobs. They're wishful thinking. Declaring six billion openings for Einstein doesn't create six billion Einsteins.
That's just your own political apologetics. All's fair. We've already agreed on this truism. It explains precisely nothing.
… incomes at higher percentiles have also risen.
matt: "my dad bought his first car many moons ago for $300. adjust that for inflation and it comes to about $1400 today."
Sorry, but I don't think your dad bought a new car in the U.S. forty years ago for anything near $300. When Ford Mustangs were introduced in 1964 as an economical sports car, the lowest price was $2,320. With pretty standard options, most sold for about $2,700. Adjusted for inflation, $2,320 to $2,700 would be about $15,800 to $18,300 today. Certainly that's a little lower than current Mustangs sell for. But if you had ridden in a 1964 Mustang in 1964, and ridden in a 2007 Mustang in 2007, you would know theses are truly not comparable automobiles at all. Mustangs of today have hundreds of standard features unavailable on any mass-produced U.S. automobile from the early 1960's.
It doesn't take Einstein's, Martin. All it takes is normal people willing to apply themselves towards learning the skills that employers actually want. I just did a quick job search on Monster for my city of half a million. The result was 529 pages of jobs posted within the last 10 days.
Is there a shortage of opportunities? No.
Is there a shortage of high paying opportunities for people who don't want to apply themselves to learning a needed skill? Yes. Absolutely. And there always will be.
"Ignoring this fact doesn't address it."
well… duh. isn't that what "ignore" means?
"The point is that while real median income hasn't risen in 35 years, real per capita GDP has risen, and incomes at higher incomes have also risen."
ok, but this still doesn't change the fact that with the same income 35 years ago and today, one can buy a far superior automobile in today's market.
and, again, don't assume that the same people make the same income throughout their lives. people make more as they get older. even if the median income doesn't ever change, different (younger) folks are the ones in lower brackets at any point. on average. so there.
I suspect that golden parachutes aside, most of the gap is the result of stock upside. In an effort to protect shareholders, SEC rules have been moving in the direction of discouraging the transfer of wealth from shareholders to employees via options. Of course the CEOs will still get their options.
If the gap is other than stock/options then would certainly welcome hearing alternative views.
btw, by some assessments the gap is declining:
525:1 in 2000
411:1 in 2005
270:1 in 2007
who knows, in another decade it may even be back to 1989 levels.
http://money.cnn.com/2007/08/28/news/economy/ceo_pay_workers/index.htm
Why is the gap declining?
Your theory is that Muirgeo's people give the money to themselves instead, and you're right. Your theory is also that it's all completely fair, right, just, proper and noble, and you're right about that too.
Mark Seery,
"Why is the gap declining?"
Great question. I'll start by saying that my opinion of high CEO pay is that its not my problem because I'm not paying them. If the people who pay the CEO think that he or she is worth $xxx million dollars a year, then so be it. Consequently, my belief as to why CEO pay is declining is that the people who are paying CEOs are reevaluating. Given the list of high profile CEO screwups in the last decade or so, I'd sure as hell be reevaluating if I was the one doing the paying.
There was one paragraph I thought was amusing.
"Yet the rich devote a smaller percentage of their earnings to buying things than the rest of us because, after all, they’re rich. They already have most of what they want. Instead of buying, and thus stimulating the American economy, the rich are more likely to invest their earnings wherever around the world they can get the highest return".
Apparently this gentle has never brushed up on economics, is a hopeless defeatist or just checked hi brain at the door at the hospital he was born at.
He answered his own dilemma with this paragraph and doesn't know it. Simply create an environment in which the rich can invest in the U.S. Supply side economics!
The U.S. has one of the highest corporate tax rates in the world e.g. U.S. 39% Ireland 10%. How could we have gone through the Keynesian era which ended in double digit inflation and a recession, then through the Reagan years ( supply side ) longest period of economic growth in world history and not learned a thing. Are liberals that stupid or is it just arrogance.
You're partially right, Martin, but my theory is actually a bit more complex than that. Now, hush… I'm trying to get Muirgeo to think…
These are just words you write. You don't care how many "normal people" exist or how they might acquire the skills allegedly demanded or whether or not they can. You're just making a lot of assumptions based on your own politically motivated theory.
No one denies the existence of job openings. This fact is absurdly irrelevant. The issue is a real median income that doesn't rise for 35 years while real per capita GDP doubles along with incomes at higher percentiles as well as Federal employee incomes generally. You already know what's happening at GM, as current workers impose rents on future workers, but this fact in no way alters your assumption that every case you don't observe fits your theory.
Everyone has the opportunity to dig his lunch out of nearby garbage disposal. The particular opportunities at issue here are opportunities better than a job at WalMart for the 7500 people standing in line for 350 openings in Atlanta. You generalize only to obfuscate.
More words asserting your blind faith in your theory (which is tautologically true) and ignoring every specific fact cited. If I'm a statesman and want to consume more with the rents I raise from you, I simply post lots of job openings for which no qualified applicants appear and then give myself a bonus with rents instead. Or I give myself a $140,000 buyout bonus which I've borrowed against the future earnings of my productive organization before hiring you to replace me. It's all fair, and kings rule by divine right too.
Martin, you're thinking if more suited to the feudal Europe of 1500 then America of 2008.
Martin,
"You don't care how many "normal people" exist or how they might acquire the skills allegedly demanded or whether or not they can. You're just making a lot of assumptions based on your own politically motivated theory."
You're right, I don't care, but my assumptions are not politically motivated. I have no interest whatsoever in applying political solutions to personal problems.
"If I'm a statesman and want to consume more with the rents I raise from you, I simply post lots of job openings for which no qualified applicants appear and then give myself a bonus with rents instead."
Sounds a bit "conspiracy theory" don't you think? Occam's razor, dude. The jobs are posted because the employers have jobs that they want done.
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