Review By Loyd Eskildson

Choosing one's facts carefully enough in economics allows proving just about anything. Unfortunately, while this makes drawing conclusions easier, it doesn't make them worthwhile. Author George Melloan works hard at choosing his facts, but even still ends up with inconsistencies en route to some horribly biased conclusions. The good news is that he does have a few good points as well.

Inconsistencies and logic fallacies are found throughout The Great Money Binge (Threshold/ Nov 2009). Early into the book Melloan declares that (primarily) "friendly tax rates" lead to a good economy, and "supply creates its own demand" - without credible documentation or proof. In fact, corporate tax rates have fallen from 50% (1980) to about 40% (1989) while top personal rates fell from 50% (1982) to 35% (2009) - and both are considerably further mitigated by numerous exceptions and credits. Meanwhile, the U.S. economy moved from one serious recession (early 1980s) to one believed even more serious today.

As for "supply creating its own demand" -- taken literally, that means recessions, depressions, and low-growth economies are impossible - clearly a flight from reality. Melloan also asserts without documentation that "the quality of growth generated by the private sector is better than what the public sector might deliver" - despite our obvious need for major public infrastructure repair and expansion ($11 trillion, per experts), and the loss of trillions by the financial and real estate sectors running amok during the new millennium. Melloan also declares that we are "piling trillions of dollars of new debt" on top of those already existing (true), that "Americans have gone mad via the mythical monster of global warming" (fortunately, most Americans are convinced otherwise), and is upset about CAFE forcing fuel standards to increase to 35 mpg by 2016 (relieving pressure on the falling dollar that Melloan also cares about).
 
Having a sound currency is another major Melloan concern - for example, the Japanese yen traded for 360/dollar in 1963 when I visited, and is now down to 87. Rising federal deficits are clearly partially responsible and well pointed out in the book; however, author Melloan ignores our similarly contributing high and rapidly rising trade deficit - though he almost totally ignores Free Trade, other than a short phrase in support.

Melloan is also silent on illegal immigration, and virtually silent, though supportive, of H1-B visas - additional contributing factors. Perhaps Melloan is still living in the age of 'Free Traders' Adam Smith and David Ricardo, though with today's instant communications, fast shipping, and hundreds of millions of Asians wanting to find manufacturing jobs I doubt Smith or Ricardo would support Free Trade for today's U.S. (In fact, Smith warned about Free Trade excesses leading to weakened defenses.)
 
On the other hand, I support Melloan 100% in his upset over government spending - the problem, however, is that he doesn't do a good job of pointing out where or how large it is. Our defense, drug control, education (K-12, college and university), health care, and homeland security sectors each spend at least twice the GDP of other developed nations, with highly unsatisfactory outcomes while mostly funded by government spending. 

Wasted expenditures in these areas total some $2.5 trillion/year - about 18% of the GDP and rising! Then there's the rest of the federal government - what do the Departments of Commerce and Treasury do with their 92,000 employees, or Treasury with 109,000? Or the State Department with 5,500 employees in Baghdad? And none of these figures include contractors!
 
Regardless, Melloan goes on to carp about China, based on memories of a visit 12 years ago - approximately an eon in the Chinese development and learning time-frame. And he points out their banking problems - some with 20% non-performing loans, while forgetting about our own Citibank, AIG, etc. Then he zooms over to Russia for a few more shots against their economy, again 'forgetting' that the turmoil encountered by that nation was created by following Harvard-economists' recommendations for a 'cold-turkey' switchover that led to massive fraud, hyperinflation and employment. (The Chinese watched, learned, and modified accordingly - on their own.)

This is all part of the author's phobia of an increased government role in the economy - despite that being the clearest and most proven route to significantly reducing our debilitating health care expenditures. (Melloan also seems not aware that the V.A. health system provides care at less cost and better quality than any other major U.S. care group.) A government led economy, with limited input, is also key to China's ability to manage their economy better without the costs and confusion created by legions of self-interested lobbyists that have taken over our government. (We also need to face up to most researchers' finding that the average IQ in much of Asian societies is about ten points higher than in the U.S.)
 
The author is probably at his worst when he challenges us to "unlock the productive and creative energies of the American people" - not realizing that we have shipped much of the required capital to China, allowed machinery to rust through disuse and lack of care, and deprived our workers of the ability to maintain and develop those productive and creative energies. All part of Adam Smith's 'invisible hand' and short-term financial markets encouraging off-shoring these invaluable assets.
 
Then there's the topic of government bailouts - over $1 trillion for Chrysler, G.M., AIG, and much of the banking industry. We don't even know how much was spent bailing out these champion capitalists!
 
Finally, Melloan criticizes the U.S. record on inflation, with some justification. However, my understanding is that economists are mostly in agreement that a little inflation is a whole lot better than a little deflation, especially in an under-performing economy.
 
Bottom Line: If readers like their facts carefully picked by Melloan, they probably already know the conclusions he's going to reach, and have no need to even read The Great Money Binge. Writing and reading this book does our nation more harm than good. Meanwhile, more thoughtful and open-minded authors are worrying if America has lost its way, and most agree that this will be China's century.

George Melloan worked for The Wall Street Journal as a newspaper editor for more than half a century.

Loyd Eskildson is retired from a life of computer programming, teaching economics and finance, education and health care administration, and cross-country truck driving.  He's now a reviewer for Basil & Spice.

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