Free Markets, Free People

Richard Epstein

The sad state of the union

Richard Epstein analyzes the performance of Barack Obama as President of the United States, and unsurprisingly, finds it wanting.

In working with matters overseas, the President must lead.  The most that one can expect of Congress is to authorize or ratify the actions that the President must implement. Presidential leadership, announced in a single and decisive voice, is essential, for no one can expect a deliberative body to take the lead in foreign statecraft. On domestic affairs, the opposite stance is appropriate. It is wise in general to look to the Congress to take some leadership in setting basic social and economic policies. But the President gets this division of labor exactly backwards. He is far too passive on foreign affairs and far too meddlesome on domestic ones, which is why his policies in both domains have failed.

A very succinct statement of Obama’s failure.  That leadership thing again … he isn’t one.  And he has no idea how to deal within the political reality of a 3 branch government … even though he was, allegedly, a legislator and Constitutional scholar.  He’s spineless when it comes to the part of the governmental pie that is his pretty exclusively (i.e. foreign policy) and a petulant child in matters concerning domestic affairs using his “pen and phone” to accomplish his goals (goals that are likely to be dismantled at the first opportunity a new president has) rather than working in the prescribed system.

Epstein goes on:

Starting on the foreign policy side, Obama’s policies are driven by the flawed proposition that “smarter” leadership lies in building coalitions that “combine military power with strong diplomacy.” This position, he said in his State of the Union, pays concrete dividends: “In Iraq and Syria, American leadership—including our military power—is stopping ISIL’s advance. Instead of getting dragged into another ground war in the Middle East, we are leading a broad coalition, including Arab nations, to degrade and ultimately destroy this terrorist group.” 

It is all wishful thinking. Militarily, it is never enough to stop an advance if it allows the enemy to use the breathing space to entrench itself further in the places that are under occupation. Obama’s word choice of “ultimately” allows for endless equivocation and delay. The odds of putting together an effective coalition without demonstrable leadership are slim to none, for the President’s only firm commitment—not to use ground troops ever against ISIL—signals to our allies that they too can discharge their obligations by flying the occasional sortie against ISIL positions.

The President may think that it has been an accomplishment to reduce over the past six years the number of American troops in Iraq and Afghanistan from close to 180,000 to under 15,000. But to everyone else, the civil disorder attributable to American disengagement signals that America is not an ally to be trusted.

The President therefore grossly miscalculates when he concludes that “The shadow of crisis has passed, and the State of the Union is strong.” Unfortunately, the facts on the ground show the opposite. Right now the President is bogged down in negotiations with the Iranians over their deployment of nuclear weapons. Little visible progress has been made to date.

And there’s very little incentive for the Iranians to actually cooperate.  It’s all about stalling and buying time.  Meanwhile, Russia and Iran have signed a military pact.  Any guess who has already lost to Iran and just doesn’t know it yet?  It appears at least Congress does and is trying to do something about it (and yes, it’s supposedly outside the scope of their charter, however, Mr. Pen and Phone has declared how he plans to operate … why not Congress.  As someone said, ‘it’s like there are no rules anymore’).

Originally, the President supported at most a six-month moratorium on sanctions in order to lead the Iranians to the bargaining table. Yet when faced with their stalling tactics, he has pleaded for additional time, thus backing away from his explicit promise to keep a firm deadline for making a deal and vowing to veto any legislation that tries to firm up the initial position. Congress may well intervene to keep him to his original word. Generally, this kind of interference is most unwise, but the bipartisan unhappiness on the Iran problem reveals a complete and bipartisan breakdown in trust between Congress and the President.

That’s probably as interesting as anything – even Democrats in Congress have had their fill of Obama’s foreign policy incompetence.  Bottom line?

The President, through his foreign policy, has lost the confidence of his allies across the globe and has emboldened the aggressive behavior of our enemies. Lacking confidence in the United States, our allies will have to fend for themselves, which helps explain the hopeless impasse in the Israeli-Palestinian negotiations, and the recent coup in Yemen, to which a few drone attacks are no response. There is also the strong likelihood that Afghanistan will lapse into further violence. It boggles the mind that the President can gloss over such massive failures with empty platitudes.

Indeed. But then “empty platitudes” are one of his few “strengths”.  Naturally, he’s full of them.


The situation on the domestic front is different. On these issues, the President knows that none of his short-term proposals are likely to get through a Republican Congress that is set against further tax increases and government transfer payments. But he nonetheless charges forward in an effort to build a populist political base that will perhaps in time enact most of his program.

But politics aside, the President wholly fails to understand the importance of economic growth in his relentless attack on economic inequality. The difference between these two programs is striking. A growth-program seeks to expand the size of the overall pie, trusting that the able and hardworking people whom the President lauds will be able to garner their share of the pie. The key point here is that gains from growth are sustainable because no firm has any incentive to back away from employment contracts that work to its own advantage. The hands-off policy thus improves economic incentives and reduces administrative overhead at the same time.

None of this makes the slightest impression on the President, who has concluded that his own brand of “middle-class economics works.” At one level, he is surely correct to insist that everyone “gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.” But it hardly follows that the way to make “working class families feel more secure” is to ply them with a set of educational, housing, and health care subsidies, all of which have to be paid for by someone else, whose life is made less secure by the constant threat of ad hoc government intervention.

This is the cognitive dissonance we often note with leftists in power.  They may be quite bright intellectually, but economically, most are illiterate.  Nothing is “free” … someone pays for it.  And 90% of the time those paying for it are in the middle class.

Then there are the big lies they push in an effort to make themselves look better in the eyes of the public, even though fact don’t support their claims.  Not that it stops them from continuing to claim success.  For instance:

He speaks about the 11 million jobs created since the depths of the last recession. But his claim is full of holes. Right now, the total number of employed individuals in the United States is about what it was six years ago, notwithstanding a population gain of over 15 million people. Worse still, virtually all the gain in employment has come from part-time employment, which is encouraged in part by the Obamacare mandate that stipulates that employers must provide health care insurance for those who work 30-hours a week or more—a topic on which the President was mysteriously silent in his State of the Union address.

So what happens when you begin to believe your own lies?  You make stupid decisions or you back stupid policies:

Unfortunately, the President has already proposed an increase in the capital gains tax to 28 percent for people who earn more than $500,000 in order to fund a variety of educational programs, chiefly by offering a free ride to students who attend community colleges and maintain a 2.5 average, which he hopes would hone skills needed for middle class jobs, but which is more likely to lead to grade inflation. But the argument is wrong on both sides. Proprietary schools are more likely to train people for jobs than community colleges, because they face market responses when they don’t perform. The President’s program thus increases government subsidies without any promise or expectation of improved performance.

Yet the increase in the capital gains tax creates a double whammy. The first point is that the reduction in capital investment that this tax promises will make it more difficult for wages to rise. The simple proposition here is that capital and labor are complementary goods, so that higher wages depend on the better facilities and equipment that makes labor more productive. The second point is that the increase in capital gains rates is likely to translate into a reduction of taxable income. Unlike income from earnings, the capital gains tax is only triggered by a sale or other disposition of property. The high tax results in a reduction of the number of sales. That in turn not only decreases tax revenues, but also the efficiency of the capital markets, because it is more costly for people to switch their investments from inefficient to efficient firms.

And that’s why this man should be no where near the White House.

But we told you all that before he ever ran.


“You can’t make the poor rich by making the rich poorer”

That’s a quote from attributed to Abraham Lincoln* as delivered by Richard Epstein in his discussion of economic inequality (a meme that is all the rage right now). Interestingly enough, this interview was conducted and broadcast by PBS (as tree hugging sister notes “I’m sure whoever’s idea it was has been sacked. Along with all the llama trainers”).

In any event, this is as good a retort to the #OWS nonsense as you’ll likely find. Enjoy (HT: Insty):

Watch Does U.S. Economic Inequality Have a Good Side? on PBS. See more from PBS NewsHour.

ADDED: Although Epstein doesn’t say it explicitly, essentially he describes “economic inequality” as a benign effect, rather than a malignant cause. Understanding the difference leads to understanding why allowing for the greatest number of opportunities works better at increasing everyone’s wealth instead of trying to equalize outcomes.

* Thanks to DWPittelli for pointing out this misattribution in the comments (“It was the Reverend William John Henry Boetcker (1873–1962) who wrote “you cannot help the poor by destroying the rich” and 9 other related aphorisms in 1916. A printing error in 1942 led to the confusion between some Lincoln quotes and these Boetcker quotes.”).

Constitutional? How can any seriously think ObamaCare’s mandate isn’t Constitutional?

That is precisely the take that Josh Marshall and much of the left have, amusingly, expressed:

A year ago, no one took seriously the idea that a federal health care mandate was unconstitutional. And the idea that buying health care coverage does not amount to "economic activity" seems preposterous on its face.

I’m not sure how Marshall actually believes "no one" took seriously the idea that the health care mandate was unconstitutional, unless he really means "no one who matters". And even then he’s wrong. So let’s boil it down to its real meaning – no one on the left, who consistently ignore the Constitution and matters relating to constitutionality, took the idea seriously.

I’m shocked – shocked I tell you.

Obviously a whole lot of people in the middle and on the right took it very seriously.  So much so that at least a plurality of states have initiated law suits against it and/or passed laws rejecting it.

Marshall also claims that the “idea that buying health care coverage does not amount to "economic activity" seems preposterous on its face.”  Uh, OK, who exactly is claiming that?  What is being discussed is not buying insurance.  And the decision to not buy something has nothing to do with “economic activity” does it?  So let’s turn Marshall’s sentence around: “the idea that not buying health care coverage does amount to “economic activity” seems preposterous on its face”.

Yes, I would agree – and so did Judge Hudson.

Speaking of Judge Hudson, Richard Epstein gives a pretty good summary of the key point in his ruling:

The key successful move for Virginia was that it found a way to sidestep the well known 1942 decision of the Supreme Court in Wickard v. Filburn, which held in effect that the power to regulate commerce among the several states extended to decisions of farmers to feed their own grain to their own cows.  Wickard does not pass the laugh test if the issue is whether it bears any fidelity to the original constitutional design.  It was put into place for the rather ignoble purpose of making sure that the federally sponsored cartel arrangements for agriculture could be properly administered.

At this point, no District Court judge dare turn his back on the ignoble and unprincipled decision in Wickard.  But Virginia did not ask for radical therapy.  It rather insisted that “all” Wickard stands for is the proposition that if a farmer decides to grow wheat, he cannot feed it to his own cows if a law of Congress says otherwise.  It does not say that the farmer must grow wheat in order that the federal government will have something to regulate.

It is just that line that controls this case.  The opponents of the individual mandate say that they do not have to purchase insurance against their will.  The federal government may regulate how people participate in the market, but it cannot make them participate in the market.  For if it could be done in this case it could be done in all others.

Read all of Epstein’s opinion piece by the way.  There’s a lot more to this than just the point I made and he explains it very well.  The usual suspects  disagree.

Anyway, assuming this somehow stands and makes it to the Supreme Court, where after a good breakfast and a good night’s sleep Justice Anthony Kennedy decides “what the hell,  Judge Hudson is right” and the court rules the mandate unconstitutional, what would be the ramifications?

E21 covers some of those for us:

Without the individual mandate, the whole Obamacare edifice crumbles. The judge did not rule that the entire law must be invalidated. But if the individual mandate goes, the insurance regulations — and most especially the requirement that insurers must take all comers without regard to their health status — will never work. Patients could simply wait to enroll in health coverage until they needed some kind of expensive treatment or procedure, and thus pocket the premiums they would have paid when they were not in need of much medical attention.

Or said more simply – without the mandate the whole of the law is unworkable.  Without the mandate, repeal will seem to be the best option.

Oh, and watch the GOP on that point.  When it was first passed, all I heard was “repeal, repeal”.  Now I’m hearing “repeal and replace”.  Uh, no – no “replace”.  Fix the government side of things that are in such horrendous shape and driving the cost of health care up, but stay out of people’s private insurance. 

And should repeal actually happen the insurance industry better get their heads out of their posterior and get busy finding ways to insure more people more cheaply (like creating products where employers could indeed move their workers to that would be outside the work place making insurance portable (thus no “pre-existing conditions”), affordable (large pool) and deliver quality care.   Because, as is obvious, if they don’t someone will again try to do it for them.


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Harsh Words For Politicized Economic Advisers

Richard Epstein, writing in Forbes, has some very unkind but deserved words  for President Obama’s panel of economic advisers and specifically, Christina Romer.

The recent “upbeat” news is that the level of unemployment has leveled off at about 10% after its earlier climb this year. And just what has been the role of his professional advisors in the sorry performance of the last 10 months? To tell, it appears, the president exactly what he and his political advisors want to hear.

He points to Romer’s recent WSJ editorial:

Exhibit A is Christina Romer’s recent Wall Street Journal column, “Putting Americans Back to Work.” Romer heads the president’s Council of Economic Advisers. Her column rates as a bit of transparent propaganda that belongs in a fan magazine, not a serious newspaper. If she wrote it of her own volition, she should be fired for economic incompetence. If, as seems more likely, the White House wrote it for her, or told her just what to say, she should resign in protest.

If, over the past 10 months, you’ve had the growing feeling (or realization) that we’re now into politics 2.0 and the entire administrative organization is committed to propagandizing and politicizing everything, I’d say you’re right. Oh certainly past administrations have been guilty of some measure of that, but not to the level we’re seeing it now – to the point that it is so obvious that it must be commented upon by usually dispassionate economic analysts.

For instance, Epstein says:

Her column contains nine awestruck references to presidential omniscience and benevolence. Its opening sally places all the blame on the Bush administration, by claiming that Obama took office at “the height of the worst downturn since the great depression.” Funny that she failed to mention the tumultuous events of September and October 2008 had cooled off before then. Nor, of course, did Obama “stop the economic free fall” in those tempestuous autumn days, unless Moses also parted the Red Sea.

Worse still, she blindly celebrates Obama’s worst economic blunders as his greatest triumphs. The $787 billion stimulus package in the American Recovery and Reinvestment Act was a bust. Its protectionist “Buy American” provisions remain a perpetual irritant to international trade. The warped Cash for Clunkers program created a short bubble via a massive public giveaway, while doing nothing to help the environment.

Why, one might ask, with all these supposedly farsighted maneuvers on the books, does the president still face a “weak” employment market? Romer offers no explanation for how Obama’s wise decisions made matters worse. Instead she hyped Obama’s inconclusive meeting with various community leaders that took place the next day.

Or, as he says, propaganda and cheerleading. Is this what we expect from so-called economic experts advising the president? Is there any wonder that unemployment stands at 10% after these same advisers told the president that the “stimulus” would hold it at 8%?

Why aren’t they, instead, advising the president to do those things that government can do that actually would spur employment? Is it because they are as political as the rest of the administration? If not, why would competent economists address unemployment like this:

High on its agenda was an investigation of public-private partnerships that could, at best, only usher in yet another round of economic gimmicks. No credible economist could think that “direct incentives of homeowners to retrofit their homes to improve energy efficiency” could place a dent in the ranks of the 15.4 million unemployed. Far more likely is a replay of the older story: subsidies for these programs sop up wealth and thus kill sensible job opportunities elsewhere.

Or, playing to the political agenda even when it is ineffective in doing what really needs to be done – square peg/round hole.

What they ought to be saying the president is either being left unsaid or being ignored. The reason will be obvious:

You can only improve labor markets by freeing them up. Scrap the talk about goofy ad hoc subsidies, and tell the president, for the first time in his life, to think hard about deregulation. Roll back the three recent minimum-wage increases that have blunted job creation for low-skilled workers in a stagnant labor market. Announce he will veto any effort by Congress to pass the Employer Free Choice Act, whose uncertain threat of compulsory unionization has prompted many businesses to shelve any plans for expansion. Abandon the monstrous health care bills winding through Congress, whose panoply of taxes, subsidies and regulations are job killers of the first magnitude. Put a halt on legislation for carbon caps and taxes until the science gets sorted out. Don’t let the EPA make a hasty endangerment finding on carbon dioxide.

Deregulation costs nothing to administer, increases jobs and adds to the tax base. It is only an added benefit that sound economics reduces presidential power.

Those are all things government can do now, and, they’re all things which would spur economic activity and employment. And they are all things that, politically, go completely against the agenda of the Democrats and the President. And, apparently, they go unspoken by his so-called Council of Economic Advisers.

The people are poorly served when politics seeps into every layer of an administration. Political survival becomes the foremost priority. Those whose job it is to credibly and ethically serve a president and thereby the people, fail in their duty when they become mere propaganda tools of an agenda. When the “advise”, for instance, of an economic panel is driven by politics and a desire to support an agenda rather than by a real desire to serve the best interests of the country, they fail in the inherent duty their position demands and even worse, they fail public’s trust. Being a credible adviser doesn’t mean always saying yes to the agenda, something this present bunch could apparently afford to learn and learn quickly.


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