was Secretary of Labor under Bill Clinton and is currently a professor
at the University of California, Berkeley’s Goldman School of Public
I have some
questions about some of the points that you brought up when you
appeared on CNN's
The State of the Union show Superbowl Sunday. Although all my
own training in economics is purely autodidactic, it seems to me
that your arguments rest on faulty premises.
what is the fastest way for the government to create jobs (a question
which itself relies on the erroneous presumption that the government
has the ability to "create" jobs), you replied with a
three-part answer, and first stated that "almost all economists
agree" with you.
all economists agree or not of no importance, but gives your answer
an air of authority. Unfortunately, it is the policies of these
same economists which have caused the mess in which America currently
finds itself. While "almost all economists" may still
possess authority in academia, their credibility on Main Street
is sorely lacking. In addition, many economists do not agree
with you. In fact, Austrian economists vehemently disagree with
In any case,
you said that the government's first priority should be to expand
the social safety net, which will cause money to go directly into
government welfare programs have been wasteful, inefficient, and
corrupt. Private charities do a much better job of administering
aid to those in need with the final goal of helping the unemployed
get back to work. Government programs, on the other hand, lead to
longer periods of unemployment by encouraging welfare recipients
to remain on the dole as long as possible.
I am also curious
as to how you propose to fund these programs. There are only three
ways that the government can raise revenue: taxation, borrowing,
and printing (both the latter are actually forms of deferred taxation).
All of these methods have dire implications for the economy. Direct
taxation retards economic growth by punishing producers. Borrowing
crowds out investment in the private sector. Printing money causes
distortions in the market, misallocation of resources, and eventually
destroys the purchasing power of the monetary unit.
of what importance is "money in circulation"? You contend
that passing money around will create jobs, but the fact is that
passing money around is simply passing money around. What you seem
to be proposing is that the government take money from some people,
and then give it to people on welfare so that they can buy stuff
from the same people that the government originally took the money
from in the first place. How is that going to create jobs? Why not
allow the people with money to invest it and build their businesses
so that they can hire the people to whom the government is planning
on giving their money?
it seems that you have confused money with wealth. The government
can create all the money it wants simply by printing it. Wealth,
on the other hand, can only be created through saving and investment.
second priority, you said, should be to build infrastructure — putting
people to work building roads, bridges, a new electrical grid, and
a broadband internet system.
While we certainly
need those things, how is this going to create jobs and why is it
the government's business to build them anyway?
Labor is not
homogeneous. Yes, people can do many different jobs, but many jobs
require specialized training and skills. While building a road may
be a boon to the road construction industry, how does it benefit
an investment banker who just lost his job? How does building a
bridge in California benefit an aerospace engineer who was just
laid off in St. Louis? Or running fiber optic cable in North Dakota
benefit a real estate agent out of work in Florida?
While the government
can create jobs in one sector of the economy, it can only do so
by destroying jobs in another sector of the economy. Perhaps you
are familiar with Frdric Bastiat's famous essay What
Is Seen and What Is Not Seen. In it, Bastiat explains that
when the government undertakes a project such as building a bridge
we see the benefits it brings — the jobs that it creates. What we
do not see are the things that are destroyed because of the project
— the jobs that are not created because the government confiscates
the resources needed to create them.
You may also
be familiar with the Nobel Prize winning economist F.A. Hayek. One
of the major themes of Hayek's work is that the free market is a
discovery process. Since none of us are omniscient, none of us has
perfect knowledge of market conditions. Hence, no central planner
can effectively allocate resources.
the free market's pricing mechanism provides us with the information
needed to efficiently allocate resources, and rewards those who
do so correctly and punishes those who do not.
of relying on market signals to determine where to allocate resources,
the government relies on political pressures. Most likely, roads
and bridges will not be built where they are needed, but where the
politicians think it will best serve them. The beneficiaries of
these programs will not be the American people in general, but political
patrons and special interests.
third priority, according to you, should be tax cuts. I wholeheartedly
agree. Let's eliminate personal income tax, property taxes, sales
taxes, and corporate taxes, as well as the onerous regulations that
have driven so many companies out of the country. Unfortunately,
that's probably not what you meant by tax cuts, is it?
All in all,
Professor Reich, it seems to me that your arguments defy logic and
common sense. However, as a prominent economist, public policy expert,
and opinion molder, I'm sure that you can explain what I am missing.
I anxiously await your reply.