Will Robert Reich Please Shut Up

Former Clinton labor secretary and perennial industrial policy hustler, Robert Reich, is a leading negative indicator. Whatever he predicts, the exact opposite occurs. In the 1980s, Reich declared that the U.S. economic growth rates were in a permanent slump and that we needed to adopt the economic model represented by the once famed Japanese Ministry of International Trade and Industry. In 1982, Reich co-authored Minding America's Business with Ira Magaziner which recommended that the federal government start directing the economy. A few excerpts below:

"U.S. companies and the government [should] develop a coherent and coordinated industrial policy whose aim is to raise the real income of our citizens by improving the pattern of our investments." According to the two the governments of Japan, France and West Germany "understand that the only real alternative to developing a rational industrial policy that seeks to improve the competitive performance of their economy in world markets is for the government to cede the formation of policy to the politically strongest or most active elements of industry. Industrial policies are necessary to ease society's adjustment to structural changes in a growing economy."

The United States was failing because it had "an irrational and uncoordinated industrial policy," resulting in a "process of economic policy formation [that] remains decentralized and chaotic." They added: "Perhaps the most striking feature of the U.S. industrial policy apparatus is the absence of a single agency or office with overall responsibility for monitoring changes in world markets or in the competitiveness of American industry, or for easing the adjustment of the domestic economy to these changes."

They concluded: "The failure of U.S. industrial policy is not simply a failure of organization, of course. It is a failure of substantive strategy. The industrial policies of Japan, West Germany and France have been more successful than U.S. policies because they have explicitly and consciously aimed at improving the international competitiveness of their businesses."

Total unmitigated flapdoodle.

In 1982, the Reagan Boom was just beginning as his administration dismantled the disastrous "industrial policies" pursued in the 1970s, e.g., a period of wage and price controls and energy price controls. During the Reagan Boom, U.S. economic growth rate averaged 3.2 percent per year and GDP rose by almost 36 percent between 1983 and 1990. Fortunately, President Clinton paid no attention to the economically ignorant nostrums of his Labor Secretary, and the Clinton Boom sailed on, with an average growth rate of 2.3 percent and GDP rising by 33 percent between 1991 and 1999.

Meanwhile Reich's model of economic virtuosity, Japan, entered into more than a decade of economic stagnation, and growth rates in Germany and France slowed to a crawl and their unemployment rates soared. In fact, it was news earlier this year when Germany's unemployment rate declined this June to 9.1 percent for its lowest reading since March of 1995.

Now comes the insufferable Reich with an idiotic article in the current Foreign Policy (sub required) arguing that capitalism is undermining democracy around the globe. An example of his perspicacity is Reich's bizarre assertion:

"Many economically successful nations-from Russia to Mexico-are democracies in name only."

Economically successful? What can be he talking about? Both Russia and Mexico are oil oligarchies with-how shall we say it?–problematic political histories.

As usual Reich thinks that only more state intervention (more democracy) in economies can soften the blows of globalization. Of course, Reich's chief example of undemocratic capitalism is China. China, he writes,

"… is surging toward capitalism without democracy at all. That's good news for people who invest in China, but the social consequences for the country's citizens are mounting. Income inequality has widened enormously. China's new business elites live in McMansions inside gated suburban communities and send their children to study overseas. At the same time, China's cities are bursting with peasants from the countryside who have sunk into urban poverty and unemployment. And those who are affected most have little political recourse to change the situation, beyond riots that are routinely put down by force."

Well, yes. But China's history is not over. (And never mind that rural poverty is even more grinding than urban poverty.) As Freedom House points out the number of countries that qualify as free rose from just 44 in 1972 to 89 in 2005, even as capitalism expanded around the globe. It has been hypothesized that as incomes increase in a country (rise of a middle class), the demand for democratic governance becomes irresistible. This seems to have been the pattern in South Korea, Chile, and Taiwan. Will the same thing happen in China? As a negative leading indicator—whatever Reich predicts, the opposite occurs-don't be surprised if China becomes a democracy in the next decade.

Once what passes for his analysis is complete, Reich ends by grandly declaring that the next step,"which is often the hardest, is to get our thinking straight." Advice on how to "think straight" from a man whose grand policy pronouncements have proven to be always wrong-you've got to be kidding!