Reich video

by Russ Roberts on August 4, 2011

in Standard of Living

A number of people have sent me this video by Robert Reich that purports to explain “The Truth About the Economy” in under two minutes.

I stopped after 31 seconds when he said the economy has doubled in size since 1980 but wages are flat.

1. The deflators for GDP and wages are different. The one for wages overstates inflation–it does a bad job correcting for quality improvements. (The GDP deflator may also overstate inflation, but my point is that wages aren’t flat. My impression is that the GDP deflation ends up weighting computers differently but that’s an issue for another post.)

2. Wages aren’t what you want to use. You want to use compensation which includes benefits. Benefits have become a bigger part of compensation since 1980. By leaving out health benefits and using a deflator that includes health care inflation, you further bias the calculation.

3. There has been a great deal of immigration since 1980. The average immigrant is lower skilled than the average native worker. That pulls down the average and the median but doesn’t mean that the average worker is falling behind.

More here.

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{ 71 comments }

Justin P August 4, 2011 at 5:45 pm

I particularly love the URL: http://www.huffingtonpost.com/2011/06/21/robert-reich-solves-economy_n_881479.html

Wow he solved the economy? In three minutes no less…so when is he going to get a Nobel?

This plays into the Liberal base, that doesn’t really know a lot about economics in general. It really doesn’t matter that it is wrong, as long as it serves it’s primary function, propaganda.

Anotherphil August 5, 2011 at 8:56 am

This plays into the Liberal base, that doesn’t really know a lot about economics in general. It really doesn’t matter that it is wrong, as long as it serves it’s primary function, propaganda.

Its not that they don’t know, its that they don’t care to know.

Not knowing is a deficiency of information, not caring to know is a character issue. The left profits politically and economically by peddling sophisims to those that don’t know.

txslr August 4, 2011 at 5:47 pm

Related to point #3, imagine a worker who lives 100 yards the other side of the Mexican border and makes one quarter of the U.S. average compensation. We calculate the average U.S. compensation level and he isn’t represented in that number. Then he moves the 100 yards to get to this side the border and gets a huge raise to 95% of the average U.S. average consumption. He is much better off but the U.S. average goes down because now he is in the calculation. So even though he is much better off he pulls the “average” down just by a change of location.

The average would go up either if you included him in the first calculation or excluded him from the second, but as a measure of the change in how well people are doing it doesn’t work to exclude him from one and include him in the other.

txslr August 4, 2011 at 6:42 pm

To finish my point, it is possible for every single person to have higher compensation and for the average to drop because of the change in the people you are counting from one survey to the next.

Underwriterguy August 4, 2011 at 5:51 pm

Reich is a well educated man; therefore I assume he knows the flaws in his analysis. Yet he publishes it anyway. This is an attempt to deceive. In my book that makes him a liar. Why is it that no one calls him out? Have we gotten so polite that we can’t call a liar a liar?
I don’t view exposing his lies as name calling. Maybe it would be if I called him a “bald faced liar.”

txslr August 4, 2011 at 6:00 pm

Maybe, but I draw the line at “bald-headed liar”. There must be SOME limits in civilized discourse.

Joe Cushing August 4, 2011 at 10:07 pm

That’s what I was thinking, only I was going to say that he lacks integrity. If a person is debating him, that person has to point out that RR knows but doesn’t tell the whole story. I’m not big on ad hominem attacks during debate but I really feel this point needs to be made because it adds weight to the whole story. It gives the whole story more credibility. It’s not our interpretation verses his, it’s the whole truth verses the slanted truth.

Anotherphil August 5, 2011 at 8:59 am

Reich is a well educated man.

Reich is well credentialed.

There is a difference.

He should just change his first name to “Third”-he’d have fit right it with Goebbels, Speer, Reifenstahl and the rest of that bunch.

Kirby August 5, 2011 at 9:37 am

Godwin’s Law ATTACK!

brotio August 6, 2011 at 1:17 am

Godwin can attack if he wants, but Anotherphil’s line was funny. And accurate.

Artemis Fowl August 4, 2011 at 5:54 pm

Also, if the IRS income tables are to be believe, wages have not been flat. His claim is false, even on the surface.

kebko August 4, 2011 at 5:56 pm

Give Robert Reich any problem (childhood obesity, grasshopper infestation, etc.) and he will state that the cause is inequality and the cure is redistribution.
But, he is, sadly, not the dimmest bulb on NPR’s marketplace. Look at this gem from yesterday’s show:
http://marketplace.publicradio.org/display/web/2011/08/03/pm-cut-taxes-for-young-professionals-commentary/

I found myself yelling, “No! Stop the madness!”

Bill August 4, 2011 at 7:31 pm

I wonder how much of that 17% unemployment for the under-25 group can be attributed to the minimum wage?

Kirby August 5, 2011 at 9:39 am

abouuuuut….
18% of it.

Economiser August 5, 2011 at 10:31 am

Funny, there wouldn’t be many “unpaid internships” in countries without a minimum wage and with looser employment regulations.

Ron H August 6, 2011 at 4:29 am

Funny that many who work as unpaid interns, characterize their experience as more valuable than the years of schooling they had paid a lot of money for.

What better way for a student to size up a potential employer, and a possible career, and for an employer to size up a potential employee?

Ron H August 6, 2011 at 4:22 am

Thanks for the interesting link. the mind boggles to think that this writer actually gets paid to produce that drivel. It’s not fair.

I particularly liked the following:

To break out of this miserable cycle, we need to consider a permanent tax break for the young. We could, for example, exempt workers under 25 from paying their share of the Social Security payroll tax. Yes, this might strike you as fiscally irresponsible…

Why yes, that’s an excellent idea, but let’s not stop there. Let’s exempt all workers under 55, and also let’s exempt them from the burden of receiving benefit checks when they retire.

Gary August 4, 2011 at 6:03 pm

Reich’s solutions to our troubles: More vibrancy.

Henri Hein August 4, 2011 at 6:58 pm

In 1. and your linked post, you say that inflation measures cannot be trusted. That seems to go against your own post earlier today taking DeLong to task for not adjusting for currency fluctuations.
http://cafehayek.com/2011/08/hoover-and-delong.html

So what is the deal with fluctuations: is it possible to measure them objectively?

I like Don’s approach, using the Sear’s catalog and hours worked, which demonstrates the absurdity of Reich’s claim.
http://cafehayek.com/2011/07/stagnating-middle-class.html

muirgeo August 4, 2011 at 7:07 pm

Wow…. that’s good to hear. It’s nice to know that once again the data is wrong. It’s so good to know wages are
going up, the economy is strong and everything is fine. For a while I thought there might actually be some economic hardship and other issues effecting real people. But apparently not… just a data problem.

Ken August 4, 2011 at 7:13 pm

Wrong again, fool. The point Russ made is that Reich IGNORES data. He ignores inflation calculation he doesn’t like and he ignores quality improvement indexes. Also, he dishonestly focuses on just wages, instead of total compensation, Reich willingly deceives anyone listening to him.

Also, no one is denying that hardship currently exists, dumbass. The post very clearly discusses average improvements since 1980, not 2006.

Regards,
Ken

Subhi Andrews August 4, 2011 at 8:32 pm

I have come to the conclusion that you can’t have fair exchange of ideas with muirgeo.

Krishnan August 4, 2011 at 8:59 pm

Welcome to the club … I would expand on what you said – There are many like muirgeo with whom you can NEVER have a fair exchange of ideas … No matter WHAT you say or write, they will trot out eh usual bromides “The rich are not paying their fair share”, “we should increase taxes so governments can create jobs and wealth” “even if tax revenues go up because of reduced tax rates, it is about fairness” and so on and so on … They will accept new ideas only of they come up with it … they will only look for data that supports what they claim is right – and so on … and so on …

So, stop beating your head against the wall – you will not have a headache anymore – and you will save on the costs of the aspirin/acetoaminophen tablets

Kirby August 5, 2011 at 9:41 am

Ooh ooh you forgot ‘give back to society what they stole from starving children in Africa.’

vidyohs August 4, 2011 at 9:13 pm

Everyone intelligent person comes to that conclusion. It took me two conversations with him to realize I was talking to a looney left tool.

Want to see the current 56 Stupidities of the Muirduck, we call them muirpidities here. This collection are by no means all he has written as I began to grow lazy in collecting them, as well as being turned off to the necessity of having to actually read his crap to gather the more outrageous ones to add to the list.

The muirpidities are kind of funny, yet very sad at the same time, but I wouldn’t blame you for saying no.

Ken August 4, 2011 at 9:36 pm

Of course not. Mostly I ignore him, but sometimes I do read his comments. He’s so blindingly dishonest that many times I just feel compelled to set the record straight as best I can.

Regards,
Ken

brotio August 4, 2011 at 11:04 pm

It’s hard to have an exchange of ideas with a person who has no idea.

Methinks1776 August 5, 2011 at 9:03 am

bingo.

Bill August 6, 2011 at 12:25 am

I just exchanged thoughts with muiregeo, and now my mind is a blank.

Anotherphil August 5, 2011 at 9:03 am

Its too bad we don’t realize Muirbot just loves attention. Like the grade school glass disruptor (and as economically literate) he craves attention. Good, bad it doesn’t matter. Its what he needs until his mother tells him to get off line, take off his tinfoil hat and come up from the basement for dinner.

SaulOhio August 6, 2011 at 6:40 am

Didn’t Bastiat write something about a glass disruptor? Some kind of fallacy?

Anotherphil August 8, 2011 at 9:15 am

I meant “class disruptor”.

Economiser August 5, 2011 at 10:25 am

Mostly I ignore Muirgeo. His posts are consistently wrong, and members of the Cafe consistently point out the many flaws. Nothing new here.

What bothers me is the vitriol directed at Muirgeo. There is no need for ad hominiem attacks. We know there’s no arguing with him, but new visitors don’t. Seeing us gang up on him sends the wrong message to people new to the site or to libertarian ideas. If anything, his posts and the replies to them are a way to flesh out and poke holes in liberal arguments. There are a lot of people out there who believe some or all of what Muirgeo says, and this is a great chance to speak to those who may happen across the Cafe comment section. We are doing no favors by launching into hateful speech.

Anotherphil August 5, 2011 at 3:04 pm

“What bothers me is the vitriol directed at Muirgeo.”

Why? He posts his opinions here willingly. He invites opprobrium and apparently revels in it. If it bothered him, he’d leave-but he stays-so why should it bother you? It only bothers me that when we answer him, he’s received the one thing he craves-attention. The opposite of love isn’t hate-it’s indifference. Unfortunately, those who understand the dynamics of markets never seem to learn that answer the people who would lead us down the road to serfdom are as dangerous as Nazis. (Stalin, Pol Pot, et al were accomplished killers too)

“Seeing us gang up on him sends the wrong message to people new to the site or to libertarian ideas.” this is a great chance to speak to those who may happen across the Cafe comment section. We are doing no favors by launching into hateful speech.”

While there indeed might be the occasional dedicated leftist that has a sliver of an open mind, open to dialogue and respectful colloquy, they are few and far between. Even if you haven’t been observing the left for the past several DECADES, where have you been recently? In the hours and days following the shooting of Rep. Gabrielle Giffords (and those other victims who the political class forgot because they weren’t useful in advancing the narrative) the left relentlessly tried to attribute the shooter’s motivation to some tea party affinity. When that didn’t fly, they had the leftist-in-chief (you remember, the one that said get in their face and if “they” bring a knife,we bring a gun) lecture us on civility. Now that that the political process has placed the most modest of restraints on the profligacy of the spendthrifts of the political class, they call fiscal reformers “terrorists” engaging in “jihad”.

The left is bent on conquest, always has been always will be-they are determined not on accommodating the individualist, the free-marketer, etc.-but exterminating them. It’s unfortunately that we’ve only learned to treat one brand (National Socialists) as unworthy of public accommodation and its adherents as contemptible misanthropes. Regular leftists (socialists of all other parties) routinely occupy public office, academic and advocacy positions and we are supposed to treat them and their recipes for disaster with respect-when the legacy of the past several centuries of leftist advances is misery, privation and slaughter.
Given the ferocious disdain the left has for its enemies-You don’t advocate mutual respect, you advocate political suicide. There’s a reason oaths of office prescribe the affirmant to be mindful of enemies “foreign and domestic”. Muirbot is free to spout his political theories and we’re free to treat it as vermin.

vidyohs August 5, 2011 at 4:46 pm

@Anotherpill

Now that is well said. Said it myself here, in similar words, on a number of occasions.

A wise man doesn’t compromise with the looney left, they have nothing to benefit an intelligent man, nothing to benefit a man with character, and nothing to benefit forward looking, hard working, and ambitious people.

There really is only one way this is all going to be settled, sooner or later it will come to that as I see no peaceful resolution to the problem of keeping their determined relentless hands out of my pockets.

So why flatter a mugger or his promoter, call it like it is.

brotio August 6, 2011 at 1:21 am

Ken,

I know you understand that Yasafi has no problem with lying – if it’s done in defense of Socialism and the State, but others here may be new enough not to have caught Yasafi in one of his lies. Although, anyone who has been here longer than a week has seen his muipocrisy on parade.

Invisible Backhand August 4, 2011 at 8:44 pm

Just for his own edification, I’ve diagrammed nonsequiturkens thought process. I think he’s autistic or something. I’m chagrinned it took me three moves to see he’s cafe hayeks equivalent to a npc* chatbot.

Here’s a diagram: http://i.imgur.com/BYzd6.png

npc = non-player character.

Ken August 4, 2011 at 9:35 pm

Yet you can’t explain that the mortgage or financial industry is deregulated, because of course they aren’t and haven’t been in almost a century. How does it feel to be outwitted by a non-player character?

Regards,
Ken

Invisible Backhand August 4, 2011 at 10:22 pm

GReAt, My Man, feels like a LEACH, sucking your BLood, I LovE Your blood.

Ken August 4, 2011 at 11:09 pm

IB,

How does that explain how deregulation caused the crisis?

Regards,
Ken

Josh S August 5, 2011 at 2:00 pm

This isn’t Democratic Underground or Daily Kos. Just repeating “derp derp deregulation” ad nauseam is not equivalent to an argument. We like things like “facts” and “logic” here.

Dan J August 6, 2011 at 2:23 am

Just fallacious compositions…….

Ameican_Hero August 4, 2011 at 7:25 pm

Oh thank you! That was 2 minutes of nonsense from Reich.

Surfisto August 4, 2011 at 8:18 pm

The next video after Reich’s is a rebuttal in 5 mins.

Mesa Econoguy August 4, 2011 at 8:28 pm

Bob Reich is a lawyer, not an economist.

Dan J August 6, 2011 at 2:24 am

Muirgeo is a doctor…. Leftists know everything and simply must subject everyone to their wisdom, by force, if necessary.

Surfisto August 4, 2011 at 8:29 pm

Question.
Reich says that the economy has doubled in size. He does not give a source, but is this statistic typically adjusted for inflation?

persiflage August 4, 2011 at 8:55 pm

You’ve a more robust constitution than I, Mr. Roberts – you beat me by one additional second of watching Reich’s nonsense. At 30 seconds, my brain began to bleed and I found myself becoming progressively dumber.

jorod August 4, 2011 at 9:18 pm

Figures don’t lie but……

Speedmaster August 4, 2011 at 9:25 pm

Dr. Robert Murphy had a good response to this.

Colin August 4, 2011 at 9:26 pm

Maybe im interpreting this wrong – isnt a bigger problem in his analysis that hes comparing an aggregate indicator – the size of the economy (by which im supposing he means real GDP), to something like a per-capita indicator – the real wages being paid to most workers. So that even if most worker’s wages were completely flat that whole time – the population increase in the intervening years would have a significant portion of the economy’s doubling be in the form of wages to workers that previously were not there? Would love some feedback on this.

Joe Cushing August 4, 2011 at 10:19 pm

What you say is correct. He should compare change in GDP per capita with change in total compensation per capita or median total compensation. You have uncovered another distortion.

gregworrel August 5, 2011 at 10:01 am

That was my first thought too. If McDonald’s sales double, does that mean the average McDonalds worker’s wages should double as well? Then I thought I must be mis-interpreting him because he can’t be that stupid.

Perhaps he means GDP compared to aggregate wages. But then if the increased output is due to higher productivity because of increased mechanization and capital investment, then the cost of goods and services would go down but overall wages would not go up. Workers benefit even if their wages do not go up.

Even if his numbers were right, which it sounds like they are not, then what does GDP have to do with wages? Wages go up or down based on supply and demand, not wishing and hoping.

steve August 4, 2011 at 9:40 pm

You cannot spend benefits. If trends continue and benefits, really health care insurance, take up most of compensation, what then?

Wages are not flat, they just have not risen very much. Wages at the top have grown immensely.

The rich pay more than their share in taxes. However, as wage inequality continues to grow (wealth inequality is even worse) you have no other source for revenue. Pursuing policies that will concentrate more wealth at the top will make this worse.

Steve

Emil August 5, 2011 at 3:31 am

“You cannot spend benefits. If trends continue and benefits, really health care insurance, take up most of compensation, what then?”

What about stopping this trend and letting people decide for themselves what they want to do with their money?

Slocum August 5, 2011 at 6:43 am

“Wages are not flat, they just have not risen very much.”

But that belief depends completely on your measure of inflation. If you look at all kinds of material measures, you see that Americans live much better than they did in 1980 — their houses are bigger, they dine out more, they take more trips by air, their food is better, their cars are more fuel efficient and perform better and are much safer. And that’s before you even start to talk about computers, digital cameras, smart phones, GPS units and other electronic marvels, about the Internet, and about all the services sitting on top of the electronic infrastructure (Netflix, streaming music, electronic book downloads). Inflation measures do a poor job of capturing all these new and improved products and services, giving the impression that the material well-being of average Americans has not changed much, when it’s obvious that there have been dramatic improvements in many, many areas.

Urstoff August 4, 2011 at 11:21 pm

Anytime someone says that wages are stagnant, I tend to write them off. I have yet to see one study that actually controls for migration, much less all of the other things that Russ mentions.

Henri Hein August 5, 2011 at 12:00 am

My previous comment did not appear, so reposting without links. Apologies if it becomes a dupe.

In 1. and your linked post, you say that inflation measures cannot be trusted. That seems to go against your own post earlier today taking DeLong to task for not adjusting for currency fluctuations.
See Hoover and DeLong.

So what is the deal with fluctuations: is it possible to measure them objectively?

I like Don’s approach, using the Sear’s catalog and hours worked, which demonstrates the absurdity of Reich’s claim.
See Stagnating Middle Class from last month.

indianajim August 5, 2011 at 7:33 am

Reich = Anti-Hayek

Reich is a fatally conceited, secondhand trader in Marxist scientism. Rather than illuminating the roles of prices and the knowledge of particular times and places, Reich obscures them with incessant statistical non sequitur and fantastic visions of centrally designed utopias.

Per Kurowski August 5, 2011 at 7:57 am

Reich mentions that lower taxes as a percentage of GDP implies reduced public services… that is not right if the GDP is growing.

Slappy McFee August 5, 2011 at 9:18 am

And it also ignores the reality that government spending (public services) has been INCREASING regardless of the funding source.

indianajim August 5, 2011 at 8:45 am

I urge all to take an anti-nausea palliative and watch the Reich video through to the end. Russ correctly identified some of the inaccurate and biased means Reich was using, but he missed, literally, the end to which Reich is reaching for: To persuade the “middle class” masses that they can only be better off economically if tax rates on capital gains and the top income earners are raised. Robert Reich is like the character of Grima Wormtongue in Lord of the Rings character: Although the title of Reich’s video is “The Truth about the Economy”, it might better be titled something like this: “Another Batch of Bald Leftist Lies”

Per Kurowski August 5, 2011 at 9:13 am

Bank regulators by discriminating the capital requirements of banks based on the ex-ante perceived risks of default of the borrowers, and which have already been cleared for by the markets, designed de-facto an economic package that includes a tax on small businesses and entrepreneurs, to be used to subsidize the interest costs of the government and triple-A rated companies.

That messed up the whole interest rate signaling system, created systemic threatening excesses in public and triple-A rated debt, and bank credit scarcity for the “risky” but most dynamic participants. No wonder job creation is lacking! No wonder the world is a mess!

Not a word about that in the video by Robert Reich since he, just like most of you, is not even aware of that.

PS. Our loony malfunctioning bank regulations explained in an apolitical red and blue! http://bit.ly/mQIHoi

Slappy McFee August 5, 2011 at 10:33 am

“2. Wages aren’t what you want to use. You want to use compensation which includes benefits. Benefits have become a bigger part of compensation since 1980. By leaving out health benefits and using a deflator that includes health care inflation, you further bias the calculation.”

I would actually argue that this doesn’t encompass all of the ‘compensation’ I receive as an employee. We really should be including all the costs of employing an individual when measuring against the benefits of trading for their labor. The should include both governmental forces (regulation) and market forces (clean, safe, respectable work environment). But because so many of these items are unmeasurable on a macro scale, and require the masses to actually acquire critical thinking skills, it is only a pipe dream.

Economiser August 5, 2011 at 10:40 am

Agreed. The measurement should be based on the total cost to the employer. That affects the unemployment rate much more than the baseline salary or even salary + stated benefits.

Chris August 5, 2011 at 12:53 pm

Here’s Bob Murphy’s video response:

http://www.youtube.com/watch?v=mXm4j2ORYcg

indianajim August 6, 2011 at 11:58 pm

Murphy has done a good job; thanks for the link.

Herr Doktor August 5, 2011 at 2:49 pm

I don’t know much about the data but annecdotally I would say this: My father became the CEO of a large corporation while I was in High School. I am approximately the age he was at the time my father became CEO and I am no where near his income level. Having said that I have a much “richer” lifestyle in comparison to what he had at the time. Eating out was a occaissional treat then I do it frequently. There are products that make my life better that were much more expensive or did not exist then. My entire family has cell phones that enable us to keep in touch all the time. I have GPS which simplifies travel in many ways and enables me to be on time for various childrens sporting events. My children participate in a myriad of afterschool activities largely enabled by the many volunteers in our community. Those activities are enabled by technology that allows us to work outside the confines of a office. In fact, they allow me to have opportunties to do work outside of the geographic area I live. My father moved 9 times when I was growing up gettting transferred to new locations. I have global responsiblities at work and have lived 20 years in the same area. Until the age of 21 I had flown on a plane a total of 4 times. My children exceeded that by age 5. My grandparents were “old” at 60 my father is young and active at 72. I would not trade places in time with my father as I’m sure my son won’t want to do with me. I like the reminicing about the olden days as much as the next person but I don’t want to live that way anymore. Stopping to truly reflect I think most people would agree.

ccc August 5, 2011 at 6:42 pm

what do you expect, Reich is a political hack now, rather than economist.

tdp August 7, 2011 at 12:41 am

When Harvard “environmental economist” Martin Weitzman, who argued that there is a 5% chance global warming will “destroy earth as we know it” was caught stealing an enormous quantity of methane-rich horse manure from his neighbor, one of his colleagues congratulated him, saying: “Most economists I know are net exporters of horseshit. And you are, it seems, a net importer.”

From the Introduction to “SuperFreakonomics”

Ian Random August 17, 2011 at 7:27 am

Good I’m not crazy for having a hard time watching him. I find I can listen to minutes of De Long, but only seconds of Reich. I try really hard to listen to opposing views, but too often they repeat stuff without substance.

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