A video by former Clinton administration Secretary of Labor Robert Reich has been making the rounds, as Reich (who now is teaching at the University of California-Berkeley) claims to have “solved” our economic problems. What is the problem, according to Reich? Marginal taxes are not high enough.
Indeed, as we shall see, Reich represents a class of people who yearn for the 1950s, when a third of the workforce was unionized, people “believed in government,” tax rates were high, industries such as banking, railroads, airlines, and trucking were tightly regulated, and Americans were fed the kind of news via Progressive newspapers and a regulated broadcast media that the “Reich Class” believed they should have. If one can liken this group to any in history, it would be the Bourbon Dynasty, of which Tallyrand once said, “They learned nothing and they forgot nothing.”
The video, which lasts slightly longer than two minutes and is on the website of the George Soros-funded Moveon.org, features Reich drawing little pictures and numbers that “prove” that most Americans are worse off today than they were in 1980. The problem, he claims, is that by lowering the top tax rates from 70 percent to about 35 percent is the source of nearly all of our woes. (Keeping the 90+ rates that existed before 1964 even would have been better.)
(Robert Murphy has a counter video here that deals in depth with Reich’s arguments, and I won’t repeat what he has said except to say that he is a better economist than Reich.)
Reich says that a strong economy needs a “strong middle class,” and from where does that middle class appear? From the government, of course. His argument goes as follows: we need to confiscate huge amounts of money from rich people (who get rich through nefarious schemes of making and selling goods to others, thereby robbing other people of their wealth). That money then goes to middle class people through government jobs or a private transmission mechanism in which workers are unionized.
Because middle-class people supposedly are more likely to spend a larger share of their incomes than wealthy people (who get their money dishonestly, anyway), the economy is lubricated through middle-class spending. Wealthy people, on the other hand, have the temerity to save some of their money, which drags down the economy.
Furthermore, according to Reich, private enterprise left not controlled by the state concentrates wealth, as income flows from middle-class and poor people to wealthy people through the transmission mechanism of the market. The explanation is easy: businesses make profits, and profits are little more than a scheme by wealthy people to confiscate money from the less fortunate, and profits serve no purpose other than to enrich undeserving people.
Unless taxes are raised to high levels for wealthy people, this process will continue unabated – as it has since 1981 – until Wise People from Washington, Cal, Princeton University, and the New York Times step in and convince recalcitrant lawmakers to understand the Great Wisdom contained in their analysis.
(You see, from 1981 until 2009, all of Washington was under the thrall of Free Market Economics in which no one regulated anything, taxes were almost zero, and rich people ran wild until they ran the whole thing into the ground. There was a brief renaissance under the Great Wisdom of Bill Clinton, who raised the top rate to 39.6, thus setting off an economic boom, but George W. Bush and the hyper-free-market libertarians took over in 2001 and lowered the top rate to 35 percent, which is why the economy ultimately crashed. Paul Krugman already has explained everything in his columns.)
The amazing thing is that even though the “commanding heights” of our society from the media to academe to the leaders of Washington, D.C., believed that this strategy was wrong for America, their wisdom was ignored, as shysters like F.A. Hayek mesmerized Americans with their rhetoric and sweet talk about the wonders of free markets, even though the Really Wise People knew better. Somehow, despite the fact that the Austrians were not given any academic economics positions at any “elite” university, and despite the fact that all the media outlets were utterly hostile to them, they still managed to hypnotize nearly all of America.
The Reich Class claims that these shysters even managed to hypnotize Ted Kennedy, Jimmy Carter, and an overwhelmingly Democratic Congress in the late 1970s and in 1980 to change the regulatory structure of banking and transportation! If Paul Krugman’s many missives are true – and they have to be, since he is on the Princeton economics faculty – then Kennedy and Carter must have been closet Republicans and Reaganites, since Krugman insists that it was Reagan who did all of the “deregulation.”
And, of course, the intellectual-media-political Ruling Class fought against this foolishness but somehow the Misesians and the Hayekians and Rothbardians prevailed, and now we see the results: real income has fallen consistently since 1981 for the middle class and risen for the rich, and now we are in depression. (The Clinton years, thanks to higher taxes, were golden years, but, then, Reich was part of that government and any government that includes him must be Very Wise.)
There are some problems with the macro-oriented view that real income fell for most Americans as a result of lower tax rates: it rests on the premise that the economy is exactly the same in every respect today as it was 30 years ago. Cars are exactly the same, communications are the same, clothing is the same, everything. There has been no entrepreneurship that has made life any better for most people, as entrepreneurship, according to the Reich Class, does nothing but make a few people wealthy – at the expense of everyone else.
According to the Reich Class, an economy is nothing more than a transmission mechanism of money; the electronic goods we purchase, if one reads Reich Classers like Robert Kuttner, are there only because of government agencies like NASA. If we are not starving, it is because of the Great Wisdom of the U.S. Department of Agriculture. As long as enough tax dollars flow to Washington, government scientists will continue to invent and create new products that falsely are attributed to entrepreneurs like Steven Jobs, who are nothing more than worthless rentiers whose very presence creates poverty and should be eliminated from our body politic.
As for finance, the Reich Class holds that the Foundation of Wealth in the world is the U.S. Treasury Bond, and that any attempt to stop the Holy Event of Raising the Debt Ceiling will cause financial “shock waves” throughout the world. Now, I am sure that the Reich Classers really believe that U.S. Government paper is sacrosanct, but anyone who knows about the basics of finance can see that U.S. Government bonds are fraudulent.
First, keep in mind that no other entity in this country, from municipalities to states to corporations, are permitted to sell bonds in order to pay for previously issued bonds. That is known as fraud, and the reason that the U.S. Government needs to debt ceiling raised is so that it can have funds to pay back what it owes on previously-issued bonds. This hardly is the stuff of sound finance.
Second, unlike municipal bonds (which have to go for specific capital projects like sewer repair) and corporate bonds, which also are issued for explicit things, U.S. Government bonds are spent on just keeping the government running, including paying for employees who play solitaire on their computers all day and for destructive wars abroad. In other words, the U.S. bonds are issued simply to continue the charade that the government has enough money to run its operations.
Now, an official “default” no doubt will bring headlines and a chorus of angst from the Usual Suspects, but it won’t change the underlying reality about the economy, something that the Reich Class Bourbons simply cannot understand. Few, if any, of them are entrepreneurs or know anything about what entrepreneurs do. For that matter, they know nothing about running a business (even though they believe they know EVERYTHING about such things).
What they do know, however, is how to draw a government paycheck and how to live off the wealth of people like George Soros. And they know they are always right, even when they are not.