In a new video Robert Reich tries to refute 7 economic “lies”. He makes glaring errors in logic and economic theory in every single one. This isn’t the first time Mr. Reich has been wrong, but this time he made it exceedingly easy to point out exactly how he’s wrong. I’ll go through them one by one and point out his flaws.
#1 Tax Cuts To The Rich Trickle Down To The Rest of Us
This is somewhat of a straw-man fallacy. When Robert says that tax cuts don’t trickle down, what he means is that no-one has measured a direct correlation between tax cuts on the upper tax brackets and increased wages or employment for the lower tax brackets. While his general concept may be true, he misses a large part of how a healthy, growing economy helps the least well off.
What really happens when you let businesses and wealthy investors keep more of their own money, is that they have more opportunity to invest it in new businesses or to help existing businesses improve the efficiency of their operations. These investments put a downward pressure on the prices of consumer goods, thus giving the least well-off the ability to afford more of what they need or want. These people may not see an increase in the amount of their wages or hours of employment, but they do see a real increase in their purchasing power.
#2 High Taxes On The Rich Hurt The Economy
This is essentially just a different way to word the previous point. Economists (even Keynesian idealists) agree that taxes do slow down the economy (Keynes’ followers just think they know how to offset it). So, if taxes in general are a burden on the economy, why is it magically the case that taxes on the rich aren’t?
Mr. Reich’s example – that high taxes on the rich during the middle of the 20th century didn’t stop high growth rates – makes two, obvious, logical fallacies. First, it is anecdotal evidence at best; there is no definitive proof that high taxes on the rich are not a burden on the rest of the economy. It is entirely possible the economy could have grown even faster during that period if taxes hadn’t been that high.
Second, he completely ignores all the other factors that influence an economy; e.g. regulations, investor confidence, consumer demand, etc. Also, even if this single example did show there was a correlation between high taxes on the rich and a high economic growth rate, correlation does not prove causation.
#3 If We Shrink Government We’ll Create Jobs
His argument against this is (again) anecdotal and unproven. First, the government isn’t made up of only teachers, firefighters, policemen, etc. And even if it was, most of the trained professionals exemplified could easily find similar jobs in the private sector, because society would still need teachers, firefighters, policemen, etc.
Second, since the government is funded by money taken from the private sector, would it not make sense that some of that money could go to creating new jobs? Most economists will admit that increasing taxes can hurt job growth; why would the opposite not be true? Mr. Reich fails to clarify.
#4 Cutting The Budget Deficit Now Is More Important Than Boosting The Economy With Additional Spending
There are a couple of major missteps in Mr. Reich’s argument here.
First, he assumes that more government spending will boost the economy. If the past eight years have been any indication, government spending has at best been neutral towards economy, and at worst majorly strained the economy. As I mentioned before, the money the government spends comes at the cost of the economy to begin with.
Second, he assumes that cutting the budget deficit would hurt the economy. Since I’ve already explained that the money the government spends must ultimately come at the cost of the economy, cutting the deficit at its very worst means simply not putting an unnecessary burden on the economy of the future.
#5 Medicare & Medicaid Are Killing The Budget
The argument Robert makes here reverses cause and effect, and actually supports the claim he is trying to refute. To summarize his argument: Medicare and Medicaid are not hurting the budget, because healthcare costs are rising. But, if healthcare costs are rising, will the cost of Medicare and Medicaid not go up, as well as be a bigger piece of the federal budget?
This argument also completely avoids the reasons that costs of goods and services increase. A) costs increase because of scarcity (e.g. there are fewer doctors or less raw materials available for medical supplies), but I’m pretty sure nobody is saying that’s the case. B) costs increase because of an increase in demand. This is the likely cause, but what is behind this increase in demand? I suggest it is Medicare and Medicaid. Government subsidies in the form of Medicare and Medicaid are increasing the demand for healthcare, which increases the costs, and Mr. Reich has the gall to claim that means we should keep increasing those subsidies. That’s going to increase costs for anyone paying out-of-pocket, not decrease them.
#6 Social Security Is A Ponzi Scheme
In this instance, Mr. Reich actually doesn’t even attempt to refute this claim, he just claims there’s a way to make the scam last longer. Google defines a Ponzi scheme as:
a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
Social Security as currently implemented falls exactly in line with this definition. Mr. Reich’s argument here is a clear demonstration of that. He says that the best way to keep Social Security going is to decrease the number of people allowed to withdraw from it, and increase the amount people are required to pay in. That’s exactly how Ponzi schemes work, by taking in more money from new victims than they need to pay out to previous investors. The problem, that the scheme cannot work forever, is never solved by continuing it. Eventually, somebody will get screwed-over.
#7 It’s Unfair That Lower Income Americans Pay Lower Income Tax
Oddly enough, I actually agree with Robert’s position on this point, though I disagree a bit with his reasoning. I think it is unfair that anyone is forced to pay an income tax. But if you are going to have a tax, I think it should be progressive. I think all taxes are immoral because they are involuntary, but at least we shouldn’t impose them on the people least able to survive them.
So while Robert Reich thinks (or at least says) he is trying to refute some economic “lies” generally put forth by conservative politicians, what he is really doing is trying to sell you a different set of economic half-truths to convince you that he and the politicians he agrees with should be allowed to extort money from American citizens of their choosing, to be put towards causes they deem worthy. It is dishonest, it won’t work, and it will result in a loss of the freedoms that America stands for.