Yesterday, Part I of this series looked at what motivates Barack Obama. We reviewed a Kevin Williamson column that made a strong case that Obama is an ends-justifies-the-means statist.
Today, we’re going to look at the President’s approach to economic policy and we’ll focus on an article by my former debating partner, the great Richard Epstein.
And since Epstein and Obama were colleagues at the University of Chicago Law School, he has some insight into the President’s mind.
In a nutshell, Professor Epstein says “Obama’s Middle Class Malaise” is the predictable result of bad policy. And the bad policy exists because the President has no clue about economic policy.
…the president is using the bully pulpit to argue for redistributive, pro-regulatory, pro-union policies that he claims will serve the middle class. …The President, who has never worked a day in the private sector, has no systematic view of the way in which businesses operate or economies grow. He never starts a discussion by asking how the basic laws of supply and demand operate, and shows no faith that markets are the best mechanism for bringing these two forces into equilibrium. Because he does not understand rudimentary economics, he relies on anecdotes to make his argument.
I’m not sure whether I fully agree. I suspect Obama doesn’t understand anything about economics, but it’s possible that he does understand, but simply doesn’t care.
Epstein then makes an elementary point about the harmful impact of government intervention.
Unfortunately, our President rules out deregulation or lower taxes as a way to unleash productive forces in the country. Indeed, he is unable to grasp the simple point that the only engine of economic prosperity is an active market in which all parties benefit from voluntary exchange. Both taxes and regulation disrupt those exchanges, causing fewer exchanges to take place—and those which do occur have generated smaller gains than they should. The two-fold attraction of markets is that they foster better incentives for production as they lower administrative costs. Their comparative flexibility means that they have a capacity for self-correction that is lacking in a top-down regulatory framework that limits wages, prices, and the other conditions of voluntary exchange.
I particularly like his point about self-correction. I frequently explain in speeches that markets are filled with mistakes, but that at least there’s a big incentive to learn from those mistakes. With government, by contrast, mistakes get subsidized.
Professor Epstein looks at recent economic history and wisely doesn’t get trapped in partisanship. He correctly notes that we got good results under both Reagan and Clinton when the burden of government was reduced.
Obama speaks first of how the economic engine began to stall, but he offers no timeline. His general statement may square with the economic malaise of the Carter years, but it hardly describes the solid growth during most of the Reagan and Clinton years, as both presidents grasped, however imperfectly, that any expansion of the government footprint on the economy could dull the incentives to production. The situation turned south the past ten years. The second George Bush administrative gave us No Child Left Behind and Sarbanes-Oxley, while Obama followed with Obamacare and Dodd-Frank.
The Bush-Obama years, by contrast, have been rather dismal.
Epstein next speculates whether Obama has any understanding that his policies hurt those he supposedly wants to help.
…his speech offers not one hint that he is aware of the deep conflict between his abject fealty to union objectives and the poor people he wants to lift up. Yes there is an increasing gap between the rich and poor, but that gap won’t narrow if the President keeps plumping for a higher minimum wage that will block poor individuals, many of whom are African-American, from getting a toehold in the economy. No jobs at artificially high wages—which is what will happen, per Wal Mart—is no improvement over plentiful jobs at market wages.
By the way, an even more egregious example of Obama hurting the less fortunate is his opposition to school choice.
Let’s conclude by looking at my favorite part of the article. Epstein writes that Obama is so deluded that he thinks his biggest failures are actually his greatest successes.
…he constantly thinks of his greatest regulatory failures as his great successes. No other president has “saved the auto industry,” albeit by a corrupt bankruptcy process, or “taken on a broken health care system,” only to introduce a set of unworkable mandates that are already falling apart, or “investing in new technologies,” which tries to pick winners and ends up with losers like Solyndra. The great advances in energy have come from private developments, most notably fracking, and not from the vagaries of wind and solar energy, which no one has yet figured out how to store for future use when needed. …It is easy to see, therefore, why people have tuned out the President’s recent remarks. They have heard it all countless times before. So long as the President is trapped in his intellectual wonderland that puts redistribution first and regards deregulation and lower taxation as off limits, we as a nation will be trapped in the uneasy recovery.
Here’s a good example of Obama’s upside-down world where he thinks failure = success. The Washington Examiner today commented on the President’s latest scheme to intervene in housing markets. They start by explaining how Obama’s policies already have failed.
…in February 2009, Obama spoke in Mesa, Ariz., on the housing crisis, promising that his then-forthcoming Home Affordable Mortgage Program would help “between seven and nine million families” stay in their homes. A little over four years later, HAMP was exposed as a flop by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). Just 1.6 million households had actually received HAMP assistance, seven million fewer than Obama promised in February 2009. Worse, many of the HAMP-assisted households ended up defaulting again. As of March 31, according to SIGTARP, 46 percent of the oldest HAMP modifications re-defaulted, compared to 37 percent of the more recent beneficiaries. Many homeowners would have been better off without HAMP, according to SIGTARP: “Re-defaulted HAMP modifications often inflict great harm on already struggling homeowners when any amounts previously modified suddenly come due.”
But the President hasn’t learned from his mistakes. He still wants the government to dictate how the housing market operates.
…middle Americans have every right to be suspicious when Obama says his newest round of policies will make homes more affordable. …while Obama expressed mild interest in reducing the federal government’s role in the housing sector, he also insisted that the government must ensure that Americans will always be able to buy 30-year, fixed-rate mortgages. Why? No other country on the planet has a housing market dominated by 30-year fixed mortgages, and many countries that have no long-term mortgage market at all, like Canada, avoided the 2008 housing bubble and financial crash entirely. There is simply no reason why America should repeat the same housing policy mistakes of the past. But for reasons that aren’t immediately apparent, that appears to be pretty much what Obama is determined to do in his remaining years as president.
I especially like the point about Canada avoiding the financial crisis and the housing bubble. There’s a simple explanation. Our neighbors to the north avoided the government mistakes that caused the housing bubble in America.
Remember, if more government is the answer, you’ve asked a very strange question.
P.S. There’s no such thing as too much Richard Epstein. You can click here for his analysis of the flat tax and click here to watch him destroy George Soros in a debate.
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