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Reich is Wrong

Mises Daily: Thursday, July 19, 2001 by

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Robert Reich is the Left’s favorite economic analyst.  His commentaries on National Public Radio and the Public Broadcasting System, not to mention his paean to the peerless John Maynard Keynes in Time magazine earlier this year, bear this out.  The reason for this status easily can be gleaned from his most recent book, The Future of Success.  

As someone who has been familiar with Reich’s writings since the 1980s, I suspect that Reich is primarily concerned with his own future in writing this book.  During the Reagan era, Reich enjoyed the reputation of a New Democrat—a professor at Harvard’s Kennedy School who was savvy enough not to completely condemn the market process.  

This status took a beating after Reich’s tenure as President Clinton’s first labor secretary, where his job was to provide intellectual support for numerous workplace interventions and the special interests of labor cartels.  His last book, Locked in the Cabinet, published soon after ending his sojourn in "public service," was denounced as being largely fabricated.

Now ensconced just down the road from Harvard at Brandeis University, Reich has the time, platform, and incentive to reclaim his former reputation, and this he attempts in The Future of Success.  The book has two themes.  First, it acknowledges the liberating effects markets have wrought over the last twenty years, especially through computer technology, on the common man.  Second, it warns that while these changes make the state largely irrelevant in many spheres of influence, they also create social tensions that call for its continued intervention in everyday life.  

Reich’s message is this: While we marvel at the benefits that markets produce, we mustn’t forget that they are still unstable and in need of the correcting arm of the state—and, specifically, by people like him.

What rubbish.  

Throughout the book, Reich details problems in the economy, from lost leisure hours and job security to overdependence on day care and rising income inequality.  As someone who was schooled in economics during the heyday of the Keynesian episode, Reich’s analyses of these problems become tedious and even predictable.  

Consider his discussion of workplace productivity (p. 125) as one example:

The problem … is that very often there are two tracks [toward achieving wealth], fast or slow.  The emerging economy doesn’t offer many gradations in between.  Hourly and salaried workers are still with us, of course, but more of their pay turns on how hard and how well they work.  … [R]elatively few professionals take advantage of options to take longer vacations, cut back on work time, utilize family leave policies, or go off on "sabbatical"—even in the so-called family-friendly companies.

I can only imagine the shock Reich must have felt upon learning that greedy firms actually tried to base their salaried workers’ pay to their productivity.  The injustice!  (What could be next?  Bonuses for showing up to work on time?)  Also, the idea that some people may work hard at their jobs because they like what they do seems lost to Reich.  That he sees both phenomena as weaknesses within the system reveals either his academic disconnection with real people, or a snobbery that is fashionable in some quarters of New England.

It also reveals his weaknesses as an economic analyst.  The Keynesian analysis—that markets possess innate qualities that assure their own destruction—has been discredited for two decades now.  While this interpretation of the economic scene is still stated by its true believers, the honest ones at least acknowledge the counterinterpretations from the schools of thought that have been on the ascendancy, especially those of the Austrian and the New Classical perspective.  

This analysis contends that markets actually tend toward stability, and that government intervention is what causes instability.  Consider increased work hours.  Perhaps one of the reasons why workers forego time with their families is because government now takes 40 percent to 50 percent of income, depending on where they live, compared with 20 percent to 25 percent in 1970.  These workers sacrifice much simply to maintain a standard of living that is threatened by a government that transfers their wealth to politically favored groups.  

What’s more, all demand-side and supply-side policies have as a goal the increasing of GDP from quarter to quarter and from year to year, and these policies have become nothing if not more sophisticated over time.  Is it possible that these policies push some workers in the economy to reduce leisure time so as to promote the interests of the state?

Such questions don’t fit into Reich’s paradigm.  His analysis is never more laughable as when he applies it to European firms that set up production facilities in Asia and Africa.  In his mind, profit-hungry firms in Germany and France set up production facilities overseas, resulting in decreased employment opportunities for some of their brightest minds, who are then forced to flee their countries at their earliest convenience.  Again, Reich sees this trend as the natural result of an economic system fueled by self-interest.  

The role of Europe’s onerous regulatory structure that penalizes firms for hiring employees that can never be fired is foreign to him.  Such practices, despite having produced depression-era unemployment rates in Europe, also create more dependency on the state, generating a major source of votes for the political class that supports them.  What’s more, they result in causing firms to choose capital over human labor whenever possible.  

Throughout this book, Reich’s points are peppered with observations that are so simplistic one wonders what grade level he considers his median reader to possess.  For instance, he informs us that "someone with a great deal of money can gain access to the powerful" (p. 136).  Or that firms want to avoid losing workers because "employee turnover can be expensive" (p. 81).  Or in explaining why some workers find it profitable to promote their abilities to prospective employers, famous rock singers don’t have to invest as much as would you or I (p. 142).         

In the end, economic problems are always the result (to Reich) of a market system that appears dazzling and wondrous, at least on the surface.  The Future of Success would only appeal to those who want their antimarket biases confirmed in the simplest of language.  Those who are sincerely interested in learning economic theory in layman’s terms without hints of condescension would find their time better spent by reading Frederic Bastiat or Henry Hazlitt.

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Christopher Westley, adjunct scholar of the Mises Institute, is assistant professor of economics at Jacksonville State University and is coauthor of Human Nature & Economics: Theological Anthropology and Economic Science (Lexington Books, 2001). Send him mail and see his Daily Article Archive.