Saturday, June 18, 2016

Henderson on Reich's Saving Capitalism

From David Henderson of EconLog.
"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."

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