Sunday, October 30, 2011

Robert Reich: Clear, Simple & Wrong

By now, you have probably seen Robert Reich's cobbled together series of weak talking points cut together in a video mistitled "The Truth About The Economy". Honestly, I haven't written too much on Robert Reich, but today (by which I mean - at this point - 3 months ago!) my buddy Isaac did a breif point-by-point dismantling of Reich's video... which, in case you haven't seen it, looks a lot like this:

Now... Here's Isaac:
1) "Since 1980, the American economy has almost doubled in size."

I'm presuming he means GDP? I don't know where he gets this:

Absolute GDP growth:

Per capita GDP growth:

2) "Since 1980, most people's wages have hardly increased"



2) "Almost all of the gains have gone to the super rich"

This is misleading if you just look at raw numbers and averages:

The lower quartiles have actually experienced a faster growth of income than the rich, if you track individuals over time. ch?v=vDhcqua3_W8

3) "All this wealth has given the rich lots of power, including the power to lower their tax rates."

True, the super rich do exercise a gross amount of political power, but I think there's a chicken and egg problem here. Most of the extremely wealthy families have been so for some time and have been exercising political power for at least as long. It's a self-feeding cycle, but I think his implication is that "these people got rich without government and then manipulated government." That certainly is true some of the time, but many of those wealthy families got rich *by* manipulating government power.

4) "This leads to huge budget deficits"

The idea that the only reason we have budget deficits is because the rich have lower tax rates is (sorry) FUCKING RETARDED. You could tax the rich 100% and *still* not cover the deficits our government is facing. cus/f-news/2688472/posts

5) "Instead of joining together for better wages and jobs many people are so scared that they're competing with other working people for the scraps that are left behind."

Uh, what? Firstly, being "scared" has nothing to do with labor competition. People compete for jobs because it's the natural thing to do. Improve your skills, education, etc. Apply for better jobs. What exactly does this guy expect people to do? Politely step out of the way so someone else can have that job? How does that even work?

Secondly, the whole "scraps left behind" thing just screams zero-sum game reasoning, which jobs are not.

"So we get union vs. non-union... public vs private"

Ohh, he wants everyone to unionize... Right, because union states are doing *so well* against non-union states. rticle/21577/jobs-income-data-show-right-to-work-states-have-advantage

6) "The vast middle class unable to borrow as it could before no longer has the purchasing power needed to get the economy growing again."

Firstly, I'm not convinced that the middle class is unable to borrow. I can't find any stats either way. But this is sort of beside the point. Purchasing power comes from income and savings, not borrowing. Borrowing only allows you to spend now what you'll have later, with a net *decrease* in total purchasing power (due to interest). The idea that borrowing is essential to economic growth is absurd.

And now for a little ad hom :P
I have virtually nothing to add here, but I will say that a week or so ago, Reich's video made it around my new office and all the Economic Freedom team people were both moderately irritated by Reich's willingness to play fast & loose with the facts, and to gloss over important details like income mobility; while also being a little shocked that the thing has been viewed by so many people.

Neither of those things surprises me, though. In fact, to a degree, they are related.

HL Mencken said:
"For every complex problem there is an answer that is clear, simple, and wrong."
And when Former Secretary of Labor, Robert Reich claims to be able to explain what's going on with the economy in 2 minutes... You can be sure that his clear, simple solution is just... Wrong. Way wrong, in fact.

Keynesian & other mainstream economists who rely heavily on macroeconomic modeling always make the mistake of operating far too much with aggregates and rarely dig into the details of their data sets in ways that they really need to do to actually understand what's going on.

So much of economics works that way, though. If you look at general statistics on compensation for men vs. women, you find that women make around 75% of what men make. Except, when you dig into the details and start controlling for hours worked, amount of time spent at the same job or in the same profession, full time vs. part time employees and marital/child status of men & women you find that that pay discrepancy disappears. This is how we should all know how to weed out bad economists from good ones.

Guys like Reich will take an incredibly complex national or even global economy and reduce it to a handful of aggregate numbers, and then make false conclusions without actually understanding the human elements operating within that system. No accounting is made for incentives, for the effect that monetary expansion and low interest rates - not to mention the numerous regulations and subsidies government has put in place - have on creating bubbles and their subsequent crashes.

Human action matters. Incentives matter. And aggregating all your data and drawing stupidly simplistic conclusions isn't a good way to do economics. Use all the math and the statistics you want, but you have to understand that these things are devoid of context and given the right inputs, you can get whatever output you want... Simply because the data sets are too big and the variables far too numerous to actually do anything meaningful with without zooming in.

Reich needs to zoom in.

But the tragedy here is that the video Reich made is incredibly convincing for people who are looking for an easy answer, and looking for a scapegoat and finding ways to blame their own dissatisfaction with their situation on someone else. As a video producer, I'm always looking for good ways of explaining and characterizing information in ways that are effective and convincing to people with no knowledge of economics.

Unfortunately, as one of my coworkers put it regarding Reich's video; the take-away from this video is that if you're willing to toss out reality, you can get a lot of views.

Note: This blog was originally drafted in July... But the demands of my job at the time prevented me from completing it. I'm just now catching up.

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