Robert Reich's F Minus In Economics: False Facts, False Theories

Paul Roderick Gregory ,  

I cover domestic and world economics from a free-market perspective

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Robert Reich (Photo credit: Wikipedia)

I am appalled by the economic illiteracy encountered in leading newspapers, business magazines, and prominent web sites (the news section of the Wall Street Journal is no exception). Robert Reich’s Higher Wages Can Save America’s Economy – and Its Democracy (Salon.com) is only one of many examples. As a teacher of economics for over forty years and a co-author of a best-selling 1980s economics 101 textbook, I would have given Reich’s paper a resounding F, if he had submitted it for my elementary economics class.

Reich’s elevated credentials point to an automatic A+.  As a frequent TV pundit, author of 13 books, Chancellor’s Professor of Public Policy at the University of California at Berkeley no less, and self-identified as “one of the nation’s leading experts on work and the economy,” many readers will automatically believe his economic nonsense. As a former Secretary of Labor, readers would be surprised to learn that Reich does not appear to understand how wages and labor markets work.

Reich’s resume raises one red flag: He is not an economist but a lawyer – a Yale Law School classmate of Hillary Clinton, who studied a smattering of economics for his PPE (politics, philosophy, and economics) degree at Oxford – a Rhodes Scholar no less. I am no formal credentials snob. Non PhD economists, such as Robert Samuelson, write very good economics. Robert Reich is not one of them.

My F grade is also not based on Reich’s politics, which are quite different from my own.  I award it instead for Reich’s incorrect facts and his embarrassing misunderstanding of basic issues about which economists agree.

Reich’s basic complaint in his Higher Wages Can Save America’s Economy – and Its Democracy is that “monied interests” have forgotten the century-old “basic bargain at the heart of America” that employers pay their employees enough to buy what they are selling.  This bargain “created a virtuous cycle of higher living standards, more jobs, and better wages. And a democracy that worked reasonably well.”  Reich worries that, with this basic bargain now forgotten, production will pile up in warehouses, vainly seeking buyers as the economy stagnates and jobs disappear.