Wednesday, April 06, 2011

Robert Reich On Inequality, Monetary Policy & Other Things

A reader asked me to comment on this lecture by Robert Reich.

Well, first of all I can say that he is a great public speaker, better than I am. But that is probably the only good thing I can say about it.

Secondly, as a tall person (see picture) I am offended by his anti-tall comments.
Thirdly, he misleads somewhat by not explaining that population growth is a partial explanation for why median income growth has trailed GDP growth.

Fourthly, when he correctly notes that income inequality reached highs during the recent bubble as well as the 1920s, he is confusing cause with effect. The reason why income inequality was so high was also the reason why there was asset price bubbles, namely inflationary Fed policy.

Fifthly, related to the previous point, Reich fails to note the reason why inequality has increased, namely Fed policy. And moreover, he explicitly endorses this very policy that causes inequality during this speech! It's sort of like endorsing the policy of turning off the lights during nights and then deploring the fact that it is dark.

The reader also asked a question of why inequality dropped so dramatically during the 1930s, but not after the recent slump. The explanation is simple: in the 1930s there weren't no large scale bail-outs of banks and monetary deflation during the slump. This time, the Fed bailed out Wall Street bankers and continued to provide them with free money.