Robert Reich and consumptionism

Paul Krugman once said of Robert Reich: “talented writer, too bad he never gets anything right.”

We can add to the list of Reich's problems a strong focus on a consumptionist argument as opposed to identifying the problem in a shock to liquidity preference and a decline in investment following a financial crisis. John Papola shares two examples of consumptionism from Robert Reich: here at the Huffington Post and here on This Week. He presents the usual arguments: it's a big part of GDP, median wages are stagnating, etc.

Let's review what's OK about consumptionists. First, they're on the demand side of things. They are not the bad old version of Jean Baptiste Say. That is a good thing. Insofar as that's the case their policy agitations are probably not going to be as harmful. Second, they're of course right that increasing consumption will help output. And finally, they're right that as a consequence of falling output consumption has fallen (consumption is a function of income, after all).

The problem comes in diagnosing the initial problem (which as Keynesians point out has much more to do with investment, the fragility of financial markets and demand for liquidity), and in proposing the solution (which ought to solve the initial problem).