Posted by Curt on 2 August, 2013 at 4:58 pm. 7 comments already!


Richard Epstein:

This past week in Galesburg, Illinois, President Obama gave his first speech on his plans to reinvigorate a still stalled economy at Knox College. The speech itself received little press coverage—so little, in fact, that the Sunday New York Times ran a puff-piece on it to build interest in his next speech—on a similar topic—scheduled for Tuesday, July 30 in Chattanooga, Tennessee. In these speeches, the president is using the bully pulpit to argue for redistributive, pro-regulatory, pro-union policies that he claims will serve the middle class.

Illustration by Barbara Kelley But his all-too familiar remarks are likely to continue to fall on deaf ears, as the public imagination turns its attention to real events, including the Securities and Exchange Commission’s indictment of SAC Capital Advisors and the public fight over who will assume the chairmanship of the Federal Reserve at Ben Bernanke leaves. Will the President choose the oft-impolitic Lawrence Summers, who is suspicious of the stimulus, or the cautious Janet Yellen, who supports it?

Farewell to Supply and Demand

The President’s speech at Knox College needs some close deconstruction because it sheds harsh light on a problem that has dogged his domestic policy agenda from the beginning: intellectual rigidity. 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. He notes, for example, that the Maytag plant that used to be in Galesburg is no longer in operation—it closed in 2004—but he never asks what set of forces made it untenable for the business to continue to operate there. He never mentions that Maytag’s relocation of its manufacturing operations to Mexico may have had something to do with a strong union presence or the dreadful economic climate in Illinois.

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.

Deconstructing Obama

Instead of suggesting policies to reduce the impact of government on production, Obama reverts into a lament for the lost middle class. He notes that our economic engine has, over time, “began to stall”:

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