The Reich Class: The USA's Modern Bourbons

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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.

July
19, 2011

William
L. Anderson, Ph.D. [send him
mail
], teaches economics at Frostburg State University in Maryland,
and is an adjunct scholar of the Ludwig
von Mises Institute
. He
also is a consultant with American Economic Services. Visit
his blog.

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