[Peace-discuss] Reich's book is the best he's done

[C. G. Estabrook]

      Robert Reich is Correct, the NYT's Incompetent Book Reviewer Is Wrong

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Sunday, 26 September 2010 19:54
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The New York Times assigned former Washington Post reporter Sebastian Mallaby to 
review 
<http://www.nytimes.com/2010/09/26/books/review/Mallaby-t.html?ref=business> 
Robert Reich's new book, /Aftershock: The Next Economy and America's Future/. It 
is unfortunate that they couldn't found someone familiar who knew some economics 
for this task.

Near the beginning of the review, Mallaby tells readers:

"Reich insists instead that American consumers, and particularly the middle 
class, have been buying too little. For 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."

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 -- 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.

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