Robert Reich's F Minus In Economics: False Facts, False Theories

Robert Reich's F Minus In Economics: False Facts, False Theories:
"I am appalled by the economic illiteracy encountered in leading newspapers, business magazines, and prominent web sites (the news section of the Wall Street Journal is no exception). 
Robert Reich’s Higher Wages Can Save America’s Economy – and Its Democracy (Salon.com) is only one of many examples. 
As a teacher of economics for over forty years and a co-author of a best-selling 1980s economics 101 textbook, I would have given Reich’s paper a resounding F, if he had submitted it for my elementary economics class.
...As a frequent TV pundit, author of 13 books, Chancellor’s Professor of Public Policy at the University of California at Berkeley no less, and self-identified as “one of the nation’s leading experts on work and the economy,” many readers will automatically believe his economic nonsense. 
...Reich’s resume raises one red flag: He is not an economist but a lawyer – a Yale Law School classmate of Hillary Clinton...
...My F grade is also not based on Reich’s politics, which are quite different from my own.  
I award it instead for Reich’s incorrect facts and his embarrassing misunderstanding of basic issues about which economists agree.
Reich’s basic complaint in his Higher Wages Can Save America’s Economy – and Its Democracy is that “monied interests” have forgotten the century-old “basic bargain at the heart of America” that employers pay their employees enough to buy what they are selling...  
...Reich’s “forgotten bargain” is actually a hackneyed reprise of Karl Marx. 
In Das Kapital Marx warned of crises of overproduction and under consumption. 
...Reich dates the “basic bargain” back to Henry Ford.  
Henry Ford announced in 1914 that he would pay workers on his Model T assembly line $5 a day – three times what the typical factory employee earned at the time. 
Ford, according to Reich, took this step because he understood that the higher wage would turn Ford’s auto workers into customers for his Model T’s.
...Ford’s $5 wage to convert his workers into Model T customers is an urban legend that thinking economist dismiss as nonsense. 
...Ford raised the wage to $5 because labor productivity was soaring, not because he wanted to create customers. 
In 1909, his assembly line produced one Model T at his Highland Park plant every 12 hours. By 1914, it had fallen to one car every 96 minutes, and by 1920 to one Model T a minute. (See Henry Ford and the Model T: A Case Study in Productivity). 
Ford could afford to pay auto workers producing one car a minute much more than those producing a car every twelve hours. 
He also expanded his market by passing productivity gains on to customers. 
The Model T’s price fell from $825 in 1908 to $360 in 1916. 
With generally rising wages and a falling price, Ford became one of the richest men of his era..."
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