海角大神

1. A group calling itself 鈥淪tand Up For America鈥� says I took Herbert Hoover鈥檚 treasury secretary Andrew Mellon鈥檚 words out of context in my post 鈥淩epublican Economics as Social Darwinism鈥� (September 26); and that, in any event, today鈥檚 Republicans who call for small government at a time of sky-high unemployment aren鈥檛 anything like Hoover or Mellon; and besides, many Democrats are calling for small government, too.

鈥淪tand Up For America,鈥� whoever they are, seem blissfully ignorant of American history. Beginning with the Great Crash of 1929, Hoover and Mellon called for a balanced budget and argued that what came to be known as the Great Depression was due to excessive spending by government and individuals. (Many industrialists and most classical economists of the time agreed.) Hoover鈥檚 and Mellons鈥� efforts to cut spending and allow market forces to 鈥減urge the rottenness out of the system,鈥� in Mellon鈥檚 immortal words, only prolonged and deepened the Great Depression.

2. Former Washington Post reporter Sebastian Mallaby wrote a generally favorable review of my book 鈥淎ftershock鈥� for the New York Times Book Review. But Mallaby began his review by attacking me for something I don鈥檛 assert in the book.

鈥淩eich insists instead that American consumers, and particularly the middle class, have been buying too little.鈥�

Mallaby proceeds to argue this can鈥檛 be right because

鈥淔or years, the United States has consumed more than it has produced; the excess demand has sucked in products from abroad, which is why the nation has run a trade deficit. The idea that the economy has suffered from a lack of demand is, shall we say, eccentric.鈥�

My argument is just to opposite. For three decades American consumers managed to maintain demand despite flat real wages. They did this by sending women into paid work, working longer hours, and then borrowing to the hilt. But all these coping mechanisms have come to an end. So it鈥檚 only now that we have to face the reality that most Americans have not shared in America鈥檚 prosperity.

In addition, Mallaby is confused about the trade deficit. As economists at the Center for Economic and Policy Research said in response to his review:

Actually, there are few economists who would say that the United States had excess demand throughout most of the last decade, so Robert Reich is exactly right on this point and Sebastian Mallaby is completely wrong. The trade deficit was the result of an over-valued dollar.

This is actually very basic economics. The value of the dollar determines the relative price of foreign and domestic goods. If the dollar is sufficiently over-valued then the United States could be running a trade deficit even when demand is grossly inadequate 鈥� as is the case at present. The high dollar makes imports very cheap for people in the United States, which causes us to consume large amounts of imports. It also makes U.S. exports expensive to people living in other countries, which means that we will have weak exports. It is remarkably that Mallaby is apparently unfamiliar with this basic logic and that his mistake was apparently not caught by the editor.

3. My September 22 post, 鈥淕M Has No Business Using Our Money on Campaign Contributions,鈥� summoned a rejoinder from Bob Ferguson, Vice President for Government Relations. He tells me 鈥渘o corporate dollars are used in these contributions. No taxpayer funds were involved.鈥�

Mr. Ferguson explains that the contributions have come from GM鈥檚 employee-funded PAC. Of course, even when PACs are funded by employees 鈥� that is, executives 鈥� the money often comes from the corporation, because executive pay packages are negotiated with an understanding that the executive will pay a certain amount into the corporate PAC. When I asked Mr. Ferguson whether anything like this happened at GM, he said 鈥渢his is not done at GM. Our code of business conduct would prevent any link between compensation and PAC participation.鈥�

I stand corrected.

------------------------------

海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on