David R. Henderson  

Henderson on Reich's Saving Capitalism

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The good news is that Saving Capitalism is nothing like Locked in the Cabinet, his earlier memoir about being labor secretary, in which he literally made up stories that made himself look good, as reported by Jonathan Rauch in his Slate review, "Robert Reich, Quote Doctor," (May 30, 1997). In the new book, Reich starts by making an important--probably correct--point and, to his credit, documents virtually all of his empirical assertions with checkable citations. But some of his most important empirical claims are wrong, he has a peculiar sense of what is a large amount of wealth and what is a small amount, and one of his claims shows a basic misunderstanding of wealth accumulation.
This is the second paragraph of my review of Robert Reich's book Saving Capitalism. The review is titled "Saving Capitalism from Robert Reich" and is in Regulation, Summer 2016.

Here's the conclusion:

Reich says that he wants to save capitalism for the many. He may genuinely believe that. But he has two problems.

First, he rarely, if ever, notes the regulations that keep the fruits of capitalism from the many. Consider housing. He tells how his modest-income parents were able to buy a house in the 1950s. Left unsaid but implicit is that it's much harder now, especially--as he well knows--in coastal California. But why? Could it have something to do with restrictions on building houses? Harvard's Edward Glaeser and Wharton's Joseph Gyourko have shown that a huge part of the premium for houses in high-priced areas is due to restrictions on building ("Zoning's Steep Price," Fall 2002). But Reich says not a word about such restrictions.

Second, the various regulations that he advocates would make economic growth even more tepid than it is now, making it even harder for the many to rise. We do need to save capitalism for the many, not just the few. And to do that, we need to eschew most of what Reich proposes.


Read the whole thing.


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COMMENTS (8 to date)
Julien Couvreur writes:

Great review. Loved it.

David R. Henderson writes:

Thanks so much, Julien.

Jon Murphy writes:

Good stuff (as always). I particularly like this part:

Moreover, the New York Times is heard, or read, more than I am. Without the New York Times around, my work might be read a little more. Reich’s reasoning, taken all the way, would argue for prohibition or at least regulation of the New York Times.

Likewise, you are heard a lot more than I am. We could also use this argument to restrict your own speech. It's all relative.

John Goodman writes:

Good review.

David R. Henderson writes:

Thanks, Jon Murphy. Good point.
Thanks, John Goodman. Loved your piece the other day on growing up in a segregated society.

ThaomasH writes:

Beyond the specifics of which regulations and taxes should be changed or abolished (that will depend on estimates of the effects of the changes), does Professor Henderson agree that Capitalism needs "saving," needs to be changed in ways that improve the lives of people currently at the lower end of the consumption distribution? And by "needs" I mean not just that I or you might prefer that like of outcome over others, but that if those kinds of changes do not occur other much worse changes could? For example, is it not possible that the slow down in median wage growth compared to the past and compared to growth in incomes of people at the high end of the consumption distribution, that has led to or at least made possible the increase in protectionist and anti-immigrant sentiment seen in the US in recent years?

R Richard Schweitzer writes:

The Reich "articulations" probably do not merits a review of this quality.

Still, missing, is some further understanding of what needs saving.

A society whose members engage in creating and accumulating assets for further production or deferred consumption (the process [not condition] of "Capitalism") do so through human interactions (relationships)with one another and their surroundings (resources, etc.) in specific circumstances.

The studies of North, Wallis & Weingast have established a framework for understanding how “Open Access” of the members of a society to the formation of associations (relationships) and to selection or determination of circumstances have brought about advancements of the human condition in identifiable “Western” societies.

The review delineates the disruptions and interventions in relationships, the intrusions in the determinations of circumstances, that result in constraints on Open Access - thus altering the process of "Capitalism."

What needs to be saved are the freedoms of relationships and determinations of the objectives for them, without interventions for non-related objectives.

LD Bottorff writes:

Reich advocates letting students use
bankruptcy to get out of loans...
maybe his proposal is not so bad. Lenders
would respond by charging huge interest
rates for students in such situations...

I'm not sure how much of student debt is government backed, but this report indicates that 20% of loans were private in 2012. If over half of loans are government provided or subsidized, can we believe the government is going to raise interest rates on those loans?
Other than that, it was an excellent review. Thanks.

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