In the film “Inequality for All”, Robert Reich, former labor secretary for Bill Clinton, takes a look at wealth inequality in the United States and finds a way to make everything more equal — grow the government! According to Reich, the 1% is getting too rich. Reich throws charts and graphs at the viewer, and empathizes with folks who are struggling in the stagnant economy. The movie’s thesis: the free market is filled with bullies, and we need the government to protect us.
The movie is fantastic from a documentary perspective, but lousy from an economics perspective. If you are thinking about watching this movie: beware. Casual viewers are no match for the slick editing, dramatic scoring, and the presenter himself, Robert Reich, who is a master at promoting Keynesian economic fallacies.
Here is a list of fallacies in the movie, and a rebuttal for each.
1. Consumer spending drives our economy.
Wrong. If this were true, then why doesn’t everyone just spend all the money they have, and then we’ll all be rich! Or perhaps the government should just print a million dollars for everybody, and then the economy will be fixed! Of course, this would cause hyper-inflation like they experienced in Zimbambwe, where the cost of a loaf of bread was $550 million dollars. When the government prints money, it’s the poor who suffer.
No, the real thing that drives the economy is savings and investment. When the government gets out of the way, people save and invest in business ideas that work. This creates jobs, and it’s the poor who benefit.
2. The rich don’t spend enough. They just hoard all their money in banks.
Yes, but banks invest in businesses. Businesses provide jobs for people who need them. That’s a GOOD thing.
3. All our money is going overseas, and we never see it again.
Sure we do. For example, Japan and China invest lots of money back into America. But even if they didn’t invest in America’s businesses, so what? If I voluntarily trade my money to someone overseas for an iphone, then we’re both better off. Just think, I’m trading pieces of paper for a device that can put all human knowledge in the palm of my hand. That’s a pretty good trade!
America’s problem is not that we have too little money, but that the government keeps printing too much money.
4. “There’s no such thing as a perfectly free market anywhere. Government sets the rules by which the market functions.”
True, there is no perfect free market, because government keeps getting in the way! But freer and freer markets exist all over the world. In country after country, as governments get smaller, economic propserity goes up, according to a report by the Fraser Institute.
5. Wages are low because unions are not powerful enough. Robert Reich points out that union busting happened in the late 1970s, and that’s why wages have remained low.
Flat out wrong. In 1971, Nixon cut the link to gold, which brought in a new era of inflation. Ever since the link was cut, wages have remained low relative to productivity in the economy. Throughout the movie, Reich refuses to mention anything about the government’s role in causing inflation.
6. Computers and robots are taking all the factory jobs.
But, that’s a good thing. Without automation, people would still be doing back breaking labor. People like to romanticize factory work, but they forget that it’s pretty grueling, and often dangerous. Today, less people have to do back breaking work, because we have machines to do it. And this results in lower prices at the store, and more money for job creators. And when job creators have more money, they create more jobs.
7. Libertarians say that upward mobility is important to get out of poverty, but upward mobility has fallen.
Yes, but that’s because of government. Licensing laws, for example, keep people from starting a new business. Today, you need a license to be a florist, or a masseuse, or a hair stylist. The government requires licenses for everything, and this decreases upward mobility. When the government gets rid of regulation, it creates opportunity for the poor to lift themselves out of poverty.
8. “In the late 1970s, our college graduation rates began to flatten out.”
That’s because in the late 1970s, the government created the Department of Education. The government has poured more and more money into financial aid ever since, and it’s only made things worse. Now, people are going to college who aren’t ready. When they realize this, they drop out. Government needs to get out of education entirely, so individuals can make clear decisions about whether they are ready to go to college.
9. Businesses outsource all our jobs to other countries because they are evil and greedy.
Wrong again. Government is the cause of outsourcing. When the government inflates the currency, then it costs more money to pay American workers. Who wants to pay all these inflated American wages, when it’s so much cheaper to pay workers overseas? And when the government adds so many regulations and taxes, it’s just easier for companies to outsource. But outsourcing isn’t all bad. It means consumers in America get cheaper products, and job creators have more money to create more jobs. Thank goodness for outsourcing!
10. We are under-taxing the rich!
The government is already over-taxing the rich. The top 20% of all rich folks already pay well over 68% of all of the taxes that government receives. But, let’s say that the government tried to raise taxes on the rich even more – what will the job creators do? Of course, they’ll just leave the U.S. and take all the jobs with them.
Inequality for all gets everything wrong. Equality is not the most important thing in an economy — but liberty is. A follow-up movie could be titled, “Liberty for All”. After all, it’s liberty that truly drives an economy forward.
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You go, Joe! I’m posting this now on my timeline. Thanks.
I enjoyed and appreciate post of fallacies and responses.
For number one though, I think it would be helpful to emphasize the production in addition to savings and investment. I realized keeping the replies brief is a goal… But just as everyone suddenly consuming would mess up the economy, so would everyone suddenly saving and investing.
Consumption directs production, savings and investment allow entrepreneurs to increase and improve production and productivity (raising wages). Prices and markets coordinate production, consumption, savings, and investment.
No one is behind the steering wheel “driving the economy,” and no one should be. People drive cars, but economies and societies flourish as thousands or millions of self-directed people, coordinated by market institutions, provide goods and services for others and in exchange others provide for them.
We need to question Reich’s premise and ask–why is “equality” an objective in the first place? The traditional interpretation of “all men are created equal” is equality before the law, or equality of opportunity. It is not equality of outcome, which Reich appears to be promoting.
One reason for “inequality” in wealth is that often the more wealthy have done the right things–invested wisely, avoided self-destructive behaviors, planned longterm–and when all is said and done, provided goods and services to the rest of the world. But even if they did not, even if the “rich” hoarded all their money in offshore banks, it’s still their property and it’s their right to dispose of as they wish.
We might also note that government drives for equality discourage innovation and reward counter-productive behaviors. Look at America’s inner cities as a laboratory for government attempts to create equality–war on poverty, public housing, income redistribution, urban planing, social engineering, the welfare state. The result? Cities like Detroit have self-destructed. Of course, this becomes the excuse for even more government intervention.
Which gets to the real point. How much of Reich’s motivation is to provide a justification for expanded government power? More taxes. More regulations. More shuffling people about via urban renewal. More seizure of assets and property. More excuses to intervene abroad to seize offshore bank accounts.
In the really big picture, government mandated equality leads to totalitarianism and self-destructing countries. Witness the USSR, Cambodia under Pol Pot, and Zimbabwe. Someone needs to call this to Reich’s attention, though perhaps what he does want is all power for the state as long as he is one of the nomenklatura.