Feeds:
Posts
Comments

Posts Tagged ‘Richard Epstein’

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.

Read Full Post »

In addition to being my former debating partner, Richard Epstein is one of America’s premiere public intellectuals.

You can watch him make mincemeat out of George Soros in this video, for instance, and you can listen to his astute observations about his former law school colleague Barack Obama in this video.

Renaissance man of liberty

Given his stature, I’m glad that he agrees that the flat tax is the ideal way of reforming the corrupt internal revenue code. Here’s some of what he wrote about the topic for the Hoover Institution, beginning with an outline of the fundamental issues at stake.

The central challenge for government is to incur minimum political distortions while allowing taxes to raise the revenues needed to discharge essential government functions. …Without question, the form of taxation that best meets these dual requirements is a flat tax on consumption—a position which enjoys virtually no visible political support today. …Unless something is done to alter the direction of political discourse in the United States, the next four years will be a replay of the last four years. We will witness a slow decline in the standard of living across all groups within the United States.

For those not familiar with the lingo, a “flat tax on consumption” simply means a tax system with one rate and no double taxation of income that is saved and invested. That can be a national sales tax or value-added tax, but it usually refers to the “Hall-Rabushka” flat tax championed by Dick Armey and Steve Forbes. If you want more information, click here and here.

Epstein then gives some of the economic arguments for tax reform.

A sound tax system has as few moving parts as possible. We should scrap the current system in favor of a flat tax on consumption. Radically simplifying the tax system to a flat tax on consumption would facilitate two desirable economic changes. First, it reduces taxes to zero when capital is redeployed from one venture to another, which in turn would induce better investor monitoring of current firms. The ability of investors to sell out without adverse tax consequences thus provides an added incentive for efficient market behavior. Second, it eliminates the need to draw any distinction between ordinary income and capital gains, which is one of the weak points of the current system.

And he gives some reasons why the current system is unpalatable.

Current tax policy puts items like income and deductions into political play, generating deleterious short-term consequences. Evidence of this can be seen in the rapid response of investors, who are anticipating the future tax hikes and scaling back on their investments. The adverse responses are not confined to large firms but also extend to wealthy individuals who will bear the brunt of any tax increase. The proposed increase in the estate and gift taxes, targeted exclusively at high-income taxpayers, has set off an immediate flurry of tax planning efforts by well-to-do individuals to minimize the bite of these unknown and unwelcome tax changes. Typical of the common hijinks are the estate planning tactics recently reported in the Wall Street Journal by Annamaria Andriotis, which should belie the naïve belief that high-income taxpayers don’t respond to incentives. It is not just that people go to extra lengths to alter their patterns of giving in order to take full advantage of the life-time exemption from the gift and estate taxes and annual exclusions (now $13,000 per each donor/donee pair); it is that they engage in the conscious destruction of wealth in order to minimize the impact of taxes.

He also provides the Laffer-Curve argument for better tax policy.

The President thinks that revenue growth from taxes can be reduced to a simple task of addition and multiplication. Start with the current tax base, and multiply it by the increased tax rates in order to determine the added tax revenues. …Since the advent of the income tax in 1913, tax rates have gyrated from high to low and back again. …the typical response to these tax reductions is a spur in economic activity that results in the collection of larger amounts of capital gains taxes from wealthy individuals, who also prosper under the regime by their higher after-tax earnings. …If we sock it to the rich, we run the risk of impoverishing the nation.

Esptein concludes by explaining the world is not a zero-sum exercise. Good tax policy can make everybody better off.

Too many people agree with the implicit supposition of the President that taxation is a zero-sum game, whereby the rest of the population can gain amounts that are taken from the rich through taxation. Not so. The explicit tax increases on the rich will be passed on in a variety of ways to the population as a whole so that everyone is made worse off in the name of income equality.

I certainly agree. Statists assert that people like me and Espstein believe in trickle-down economics. That’s obviously a pejorative term, but we do believe in a system where more entrepreneurship and capital formation leads to higher living standards.

How can anybody look at this chart and think otherwise?

If you want more information, here’s my video on the flat tax.

This system is working in about 30 nations around the world. Isn’t it time America had a tax system that made sense?

Read Full Post »

Folks of a certain age, who watched ABC’s Wide World of Sports, will remember the phrase “the agony of defeat.”

Well, that’s what Richard Epstein and I endured Tuesday night at the Intelligence Squared debate in New York City.

We were battling against two Keynesians, Mark Zandi and Cecilia Rouse, in hopes of convincing the audience to reject the proposition that “Congress should pass Obama’s jobs plan.”

The good news is that only 16 percent of the audience were on our side before the debate, and we managed to push that number up to 22 percent.

The bad news, however, is that 45 percent of the audience began the night agreeing with the Keynesian position and that number rose to 69 percent.

Cornelius Vanderbilt is rumored to have said, “the people be damned.” I’m tempted to stamp my feet and say the same thing, but I already did plenty of whining in a recent post, so I guess I’ll just have to suck it up and admit I somehow should have been more persuasive.

Here is some of what Elizabeth Weingarten wrote in her report for Slate.

The audience at last night’s Slate/Intelligence Squared U.S. live debate at NYU’s Skirball Center vehemently agreed with the president: After the conclusion of the debate, 69 percent voted forthe motion “Congress should pass Obama’s jobs bill—piece by piece”; 22 percent voted against the motion; and 9 percent were undecided. …NYU law professor Richard Epstein and Cato Institute senior fellow Dan Mitchell endured hisses and boos, while chief economist of Moody’s Analytics Mark Zandi and Princeton University economics professor Cecilia Rouse won laughter and applause as they took the president’s side. …Mitchell and Epstein began the debate strongly, especially when Mitchell engaged the audience in a clever “quiz” to show that the American Jobs Plan is simply a repeat of failed economic policy. “Let’s divide this room in half,” he began. “Let’s borrow all the money out of the pockets of the people on this side of the room and give it to the people on this side of the room. Now here’s the quiz. Raise your hand if you think there’s more money in the room.” The audience chuckled. This stimulus, he explained, is simply a redistribution of national income. “Our goal should be not to redistribute national income; we want to increase national income,” Mitchell said. “We want a bigger pie so everyone can get a bigger slice; that’s what economic growth is all about.”But soon, Mitchell and Epstein seemed to fall from grace. …After the debate, Donvan reflected on Mitchell’s debate strategy. “Dan Mitchell’s willingness to play the ogre, as he put it, read fun and bold, but I think it didn’t help sell the side,” he said. He even thought Mitchell and Epstein “presented a more comprehensive argument” than the other team. But it “was also the view from 30,000 feet, and less satisfying for an audience asking for a jobs solution right now.” …When I asked Mitchell why he lost after the debate, he told me it was because he was forced to play the villain. “The challenge of defending free markets and limited government is that you’re telling people there’s no Santa Claus,” Mitchell said. “Everyone likes to think that there’s some magic wand the government can wave, and especially if you’re in a position where you can be pigeonholed as somehow defending the interest of the wealthy, it makes it even harder.”

I’m not sure how I should feel about being described as an ogre, but I suppose it’s good that the moderator basically said that Richard and I presented a better argument.

In other words, maybe I should put the blame on the denizens of New York City!

But that’s no excuse. If we’re going to save America from becoming another Greece, we better figure out how to educate people who have been lured into thinking government is Santa Claus.

At some point, the people from Intelligence Squared will post a video of the debate. In the meantime, you can watch this video of me debunking Keynesian economics and this video eviscerating Obama’s faux stimulus.

Read Full Post »

George Soros participated in a forum on Hayek at the Cato Institute this past week, and the really fascinating part is watching him cross swords with University of Chicago Law Professor Richard Epstein.

The video is more than one-hour long, so if you just want to see Soros and Epstein, you can skip forward to about the 16:00 mark.

Read Full Post »

The folks at Reason TV have a fascinating interview with one of President Obama’s former colleagues at the University of Chicago Law School.

But while it is interesting the hear Professor Epstein reminisce about his interactions with Obama, the best part of the interview is his commentary about public policy. If we had five people like him and Clarence Thomas on the Supreme Court, liberty and constitutional governance in America would be restored.

Read Full Post »

Follow

Get every new post delivered to your Inbox.

Join 2,320 other followers

%d bloggers like this: