Getting Depressed About the Election II: Barack Obama
James Hanley on Oct 10th 2008
It’s looking more and more likely that Obama is going to win the election, and although I’ve decided not to vote for him, I will take some real satisfaction in his election.
I will be pleased that we’ve broken the color barrier. I wasn’t sure it would happen in my lifetime.
I will be pleased to see the religious right lose. In fact I am already enjoying the fact that Palin is implicitly conceding the election already, trotting out the defeatist mantra, “It’s the mainstream media’s fault!” that will be their excuse for the next four years.
I will be pleased to see a president who at least gives the impression of being thoughtful and mature, qualities that have only rarely made an appearance in the past 16 years.
And given that Obama really did impress me on foreign policy in the first debate, I think I will be pleased that the right candidate won, because for me foreign policy is the president’s first, second, and third job.
And yet I remain depressed. I remember how hopeful I was when I learned that Austen Goolsbee is one of Obama’s economic advisers. Perhaps, I thought, Obama will listen. But lately he has been denouncing deregulation, blaming it for the current mess, and insisting that the era of deregulation has to end.
And I am deeply worried. Deregulation began in the Carter administration, and was continued by Reagan, Bush and Clinton. Deregulation is what opened up opportunities for entrepreneurialism that allowed the economy to boom for most of the past thirty years. And deregulation is clearly not the primary culprit of the current financial meltdown. If Obama is serious about re-regulating the economy, we should all prepare ourselves for lower standards of living–perhaps not dramatically lower, but lower than we have become accustomed to, and substantially lower than they would be if we stay committed to deregulation.
Why is is that people who have not studied economics have so much confidence in their understanding of the “problems” of free markets. People who couldn’t tell you which economist came up with the theory of comparative advantage, much less explain it, or define marginalism, truly believe they have a deep insight into the errors of economists.
I can only hope that the basics of deregulation–no more government fixing of prices and levels of competition for transportation, telecommunications, etc.–are now so standard that when Obama talks about re-regulation he just means requiring more reporting by banks and other financial institutions. It will be burdensome and costly, yes, but it wouldn’t be a fundamental turn back to Rooseveltian economic management.
That’s what I hope. But Obama has entirely too much faith in government for my comfort. This is a guy who’s spent most of his working life in the non-profit/governmental sector, working as a community organizer and as a politician. I don’t think being a community organizer is a bad thing, but I do think that Obama’s career has led him to think that non-profits and governments are the real source of most of the good things in our lives, the cause of better standards of living, rather than realizing that it is the for-profit sector that produces those things.
For-profits are the ones who produce most of the medicines that keep us alive (I, for one, would be dead at least twice-over if not for profit-makers in the medical and pharmaceutical industries), that it is the for-profit sector that supplies our homes, our food, our cars, our clothes, the computers on which we blog, the sofa on which my wife is presently and pleasantly stretched out watching the television made by for-profits showing a program produced by for-profits. As the nights get cool up here in Michigan, the heater, made by for-profits and fueled by natural gas drilled for and refined by for-profits, keeps my children warm as they snuggle under blankets made by for-profits on top of their comfortable mattresses made by for-profits.
That is what I am not sure Obama understands. He doesn’t understand that economics derived from moral philosophy–that it is the science of how to improve humanity’s material well-being, not a science about how to get rich through greed and treachery. And that’s why I, as the election approaches, and as I cheer each time another state swings towards Obama, I daily become every more depressed.
Filed in The Bureau
James,
This is more or less exactly how I feel about Obama as well. Nice piece.
I’m a fairly strong Obama supporter, but you’ve covered pretty much the issues that make me hesitant about him (wouldn’t have anything to do with the fact that reading this site has been a major contributor to turning me from a libertarian leaning leftist to more of a left-leaning libertarian, would it :)
It’s weird, I keep hearing about how Obama’s strength is economic issues and his weakness is foreign policy, but for me my disagreements with him seem to be with economics. It’s the other areas that it seems like he’s shown better judgement even if he doesn’t have as much experience.
Perhaps it’s because we have decent bullshit detectors. when people say things like “economics derived from moral philosophy–that it is the science of how to improve humanity’s material well-being, not a science about how to get rich through greed and treachery,” it’s pretty clear that someone’s either lying or self-deluded.
What’s plain to even a novice like me is that the economics is a tool–it can be used both to improve humanity’s well-being and to get rich through treachery, just as chemistry can be used to treat disease or to blow people to smithereens.
Obama lost my vote when I finished reading his first book. this guy is most confused candidate I have even seen in American political scene. He has true Marxist/Socialites leaning and he is clear in his book about that, he clearly has anti-white sentiment that I have not seen discussed at all.
His talk about wealth distribution is root of this man’s problem. We all have to go back and read Atlas Shrugged, I think that’s what Obama’s presidency looks like.
Ayn Rand must be rolling over in her grave.
Frieda –
Show me where Obama is anti-white. Provide quotes, page numbers, and/or specific references to other media.
He’s socialist, yes. But so are the Republicans these days, so that’s a wash as I see it.
when people say things like “economics derived from moral philosophy–that it is the science of how to improve humanity’s material well-being, not a science about how to get rich through greed and treachery,” it’s pretty clear that someone’s either lying or self-deluded.
Fair enough. But it turns out that regulation/planning is one of the best ways to get people rich through greed and treachery.
Just to give you more reason to doubt Obama’s economic IQ, he not only voted for government to start mandating wages via the fair wage act, he has lately been running ads for fair wages as well.
If the government starts setting wages, prepare for dramatically lower living standards.
I also have a disagreement with your basic premise, the more sour the economy turns, the more likely liberty is to be curtailed. Poverty will breed more poverty and less freedom as an economic interventionist such as Obama tries to make things better. Look at Roosevelt, Nixon, and Carter for good examples.
Alan Scott:
I would agree that economic policy can be a tool to get rich through greed and treachery, but the study of economics itself? I have a master’s degree in economics and the only thing I learned that would help me get rich is that the best way to invest for anyone but a professional trader is to buy a well-diversified passive portfolio and hold hit for the long term.
«And deregulation is clearly not the primary culprit of the current financial meltdown.»
James, what do you think is the primary culprit, and what steps will make it unlikely to happen again?
Alan Scott:
So, Alan, which do you think is more likely in my case, that I’m a liar or that I’m delusional? Sounds like a good basis for a wager!
Seriously, though, when I said economics derived from moral philosophy, I meant that as a historical statement. Adam Smith, generally considered to be the father of economics, was a moral philosopher. He never took an economics course as a student, because none existed, but he held the Chair of Moral Philsophy at Glasgow University, and his first book was The Theory of Moral Sentiments.. Economics continued to be a subfield of moral philosphy for the next one hundred years, with separate departments of economics only being created in the late 18th century.
And here’s how Alfred Marshall, who began by studying ethics and metaphysics before drifting to political economy (as it was called in the late 1800s) saw it, as explained by Todd Buchholz in his excellent book New Ideas from Dead Economists:
So, no, I’m neither lying nor self-deluded. But thanks for demonstrating my point that those not well educated in economics nevertheless feel wholly comfortable critiquing it, no matter how inaccurately. It may simply be that Alan Scott has confused the study of economics with the practice of business–which are things as separate as the academic study of religion and giving all of one’s money to the poor.
Barry Leiba,
I’m not sure if there is a “primary” culprit. There may be multiple roughly equal culprits. I’m still trying to figure out what happened (and don’t have enough time right now to really do so). I’ve never before seen an issue like this where all the economists I trust seem to be scrambling to figure it out themselves, and no one seems to wholly understand it.
However I do know that, whatever free market culprits there may have been, two of the biggest problems were Fannie Mae and Freddie Mac, which were pushed by the government to extend more and more risky loans as part of an explicit government policy to get every large numbers of Americans into home ownership. So indisputably government mistakes are an important part of the puzzle, but without further study I’m not ready to call them the only, or even the prime culprit.
I used to think it was a great policy to get people into home ownership. A large property owning class ought to create a stable society, as property owners have more to lose from revolution. But I never thought about what happens if we push too far too fast. The field of government public policy is littered with good ideas gone wrong because of unintended consequences–that’s much more common than just plain old bad ideas.
I don’t think I have the means to argue substantively on this issue, and so you will have to pardon me for not being able to fully deal with the economics (as opposed to economic) issues and the situation as it approaches this socialist vs capitalist distinction.
Say that you have a society where there is no money. You have a powerplant that is run on a river and uses a water wheel to generate electricity. With nothing so much as a crew to maintain the wheel, you have a creation of a system that requires no real market value, save that crew. They demand that to be compensated for this, they must receive in kidn what they would give. This is a market system. But consider: If the crew does not produce, and does not give out, they cannot receive anything else. Here you will be given a society that is based on the share and share alike system, where each individual can only gain what he or she has given out. Individuals who are not capable of this, whom are itinerant or lazy, are separated from the society’s sharing system, and thus cannot gain within it — they must gain through their own means; but this is like everyone else, anyway. Individuals who are too young to produce, or to old or infirm, are likewise unable to produce, but these individuals differ in that they either will be able to once they have matured enough, or have given already, and their product is now their age: wisdom and experience. This is the ‘grandfather’ theory of human evolution, in which multi-generational families contribute to enable the group based on storytelling, shamanism, and later by recordkeeping.
Now take a society where even the hopsital must barter for that power supply, in the production of its medicines and the care of its practitioners and experts. How do they eat? Who builds their homes? In traditional, native societies of aggrarian and hunter/gather societies, it is the job of few to care for the many, and it is the job of the many to care for the few, in order than those few maintain them as a whole. It was the healer’s job to cure the sick, while the hunters fed the group, while the war party protected the group, the shamans tracked the times and seasons and determined the planting, the farmers cared for the animals and plants, and the storytellers passed down knowledge. It is no different today, but now today, those jobs are not enough because in addition to supplying energy to the group, the resource managers do so at a cost that is above and beyond the product of a man’s means on his own terms. He must emply the resources of others in a web that has led to inflation of the value of one person’s means over the value of another, in order for the resource of a few to become “more equal” than the resource of the many. This very premise is neither ‘free market’ nor ’socialist’, in that a few do not exchange within the group, but exploit the group for gain without exchange. This leads to the society that enjoys its TVs because it thinks its own profit is greater by the work of its hands than are the people who make those TVs. The exchange is inequal.
Going back to the hypothetical, yet existant society, it is the job of the group to ensure the existence of the group, save should an individual endanger the group or deprive it of part of its means. That individual does so by theft, murder, or resource mongering. Should the man who fishes be the only man who fishes, who can now demand a higher product for his fish than he would have, so as to gain more than he loses? But this is free market. It no more endorses competition than it does endorse envy and retribution. Such a man steals from the group to exploit it, and you would not conscience this, would you?
Today, there are regulations that say a group cannot be so exploitative, so capitalist as to be monopolizing, and that what one compensates one individual, so should he do so another — but this is not actually true. We also have people who say that a product of one resource is worth more than the product of another, even if they are equally useful. We also have a product of a group that is held to be mandatory, but the compensation is at the whim of an individual, who exploits and gains, and therefore does not want to lose. Instead of free exchange and fair use, we have skewed exchange to none, and exploitative use. Such a system is unregulated, while its opposite (the hunter/gatherer society) is regulated. Yet in either system there are benefits, but these benefits depend on the distinction between individual and group. I’ll leave it to you whom to decide which is better on the whole versus for your personal inclinations.
I have a sneaking suspicion that the labor theory of value is trapped somewhere inside Mr. Headden’s example but I can’t quite muster the energy to parse it all out, let alone start responding to his final paragraph.
Meanwhile, yeah, Obama is almost certain to win and, yeah, the Democratic Party is likely to increase its majority in Congress and the result is, to put it mildly, not likely to optimize either individual liberty or economic growth. Ironically, since the business cycle does eventually bottom out and the economy does, independent of government action, begin to improve thereafter, it’s quite possible that the Obama Adminstration will witness and thus take credit for economic “recovery.” I’m greedy enough to feel conflicted about this, by the way.
But look, no one who wants to “do good” by being a politician is likely to have very sound views about the proper, limited role of government, most Republicans (and John McCain especially) included, too.
There’s a big demand for big government. Can we be at all surprised that both candidates are promising to supply it?
There’s a big demand for big government. Can we be at all surprised that both candidates are promising to supply it?
Ive come up witha topic for Mr Hanley to write about: The failure of the minarchist government/ libertarian principles in a democratic state - an economist’s view.
Mr. Headden,
I don’t fully follow your line of thought, but I do think there are some errors in the assumptions on which your argument is built. For example, you say,
But a free market is nothing more nor less than the ability to exchange one thing for another without some figure of political authority saying “you cannot sell that thing,” or “you must not sell that thing for more than $X,” or, “you must provide some amount of that thing at a discount to those who cannot otherwise afford it.”
And there is nothing inherently wrong with one person’s means–what they are able to produce, if I follow correctly–being of greater value than another person’s. Economic value consists solely of what someone else is willing to give you in exchange for the product of your labor. If, in a hypothetical hunter-gatherer society that is transition to to a society with economic specialization, you can produce better arrows than I–yours fly true and are sharp, while mine tend to stray off course and be blunter–then of course your means are of gerater value than mine, but it’s not inflation, it’s real value.
And, if I may go where I’m not sure you were going, if we ask why should I be able to demand more in exchange for what I produce than what it takes to produce it–i.e., profit–the reason is, in part, to use scarce resources wisely, avoiding waste. If I sell my product too cheaply, the society will demand more of them than it should, and resources will go into producing that product that ought to go to something that actually has more value to society. In short, charging lots of money is not automatically exploitation, nor is refusing to pay lots of money (even for labor, if that labor doesn’t have that much value).
And in hunter/gatherer societies the divisions of labor that you spoke of rarely existed. There were not separate hunter/warrior/shaman groups. Hunters were warriors, and those few who had what it took to be a shaman were frequently hunters and warriors as well. The lack of specialization is what ultimately caused hunter/gatherer groups to be outcompeted by settled agrarian groups–division of labor (specialization) creates more wealth, promotes technological development (as people become specialists they are more capable of thinking up technical improvements for their field), and greater production also can support a specialized warrior class that is better trained than hunter/gatherer warriors (see Jared Diamond’s Guns, Germs, and Steel.
I don’t know if that came close to answering your question. I hope at least partially so.
Look at what you’re saying, James. Neither you nor the economists you trust can figure out what caused this crisis, but you’re already sure that regulation is a Bad Idea.
Clearly rubes like me ought to shut up and listen to the experts. But the problem is, you’re not really experts. You’re just partisans, blindly supporting your chosen theory, whatever it happens to be.
When he wrote The Wealth of Nations, he recognized that his theories were limited, and that there were areas where his invisible hand wouldn’t be effective. And he favored government regulation in those areas.
You, on the other hand, seem entirely unwilling to let complications get in the way of your ideology. But things are more complicated than you seem to realize. Consider your laundry list about the benefits provided by for-profit companies:
The medicines that keep us alive are produced by the for-profit sector. But the medical research they do only remains profitable because of government regulations that grant them a temporary monopoly on their inventions.
The computers that you blog upon were certainly produced by for-profit companies, but the internet that they blog through was created by government agencies and non-profit groups.
I don’t watch much TV, but my favorite Radio station is a non-profit enterprise. And without government regulation of radio frequencies, it would probably be drowned out by Rush Limbaugh and monster truck advertisements.
And it’s government regulations that ensure those for profit blankets aren’t incredibly flammable should something ever go wrong with that for-profit heater.
Yes, the free market is an excellent tool for encouraging innovation and growth. And yes burdensome regulations that reduce the profit to be had can stifle that growth. But that doesn’t automatically imply that the solution is to avoid all regulation. It simply means that any regulation should be entered into with a full understanding of its consequences.
I agree with Alan when he says “It simply means that any regulation should be entered into with a full understanding of its consequences.” That way no economic regulation would ever be entered into.
Alan,
You continue to present a charictature of what you think economists believe. you say that because we don’t know what caused the current economic problem, but believe regulation is bad, we’re blind ideologues. But your use of the term regulation is too broad and covers several different government actions.
1. Government promoting risky behavior. One of the things we know for sure that was a large contributing factor was the overlending of Fannie Mae and Freddie Mac. They overlent for two reasons: (1) Congress pressured them to do so, and (2) they believed–rightly as it turned out–that the feds would bail them out if they ran into trouble. At least some of the other financial institutions that failed or are now struggling are part of the fallout of that. So on what basis do you say that “regulation” would have been a better solution than “gov’t not interfering”? Had government not gotten involved like that, the FMs might still have engaged in risky lending, but clearly not to the extent they did.
2. Patents: I really get sick of this one being trotted out all the time as proof of the need for regulation. This is a property right, and every single free market economist you can manage to scrounge up supports government protection of property rights. And they will all agree that intellectual property rights are a bit tricky, being much more amorphous than rights in physical property. But you haven’t thrown anyone a curveball here. Economists tend to love property rights like a dog loves steak. And if you say, “yeah, but it requires government,” then I respond, yes, it does–but not an activist one, just a rather minimalist one.
3. Fire-resistant blankets: I don’t really know where most economists stand on this, but these regulations don’t bother me too much. No market is perfect, and the most persistent problem is lack of information. Some bad purchases due to lack of information aren’t critical–if I buy a lousy TV, it won’t kill me. But if I mistakenly buy my kids pajamas that aren’ flame retardant, it could be a fatal error. So I, and I would guess most economists, don’t tend to get upset about that type of regulation. Nevertheless, it doesn’t always require government to solve the information problem. Consumer Reports is one of the greatest free market products ever, as is ANSI. The fact that information is sometimes scarce in the market makes that information valuable, so it can be a good business decision to provide it for a fee.
So you’ve lumped multiple things under the term “regulation” that don’t all go together, but are actually very discrete concepts with varying levels of justification.
You refer to Adam Smith, saying that he saw areas of market failure that needed regulation, but I notice that you don’t provide any examples. This sounds to me like the argument of someone who’s heard others talk about Wealth of Nations, but hasn’t actually read it. However, not knowing you and having to go on only the information presented here, I could be wrong, and I invite you to prove me wrong.
I personally can think of two areas where Smith wanted government intervention, although I wouldn’t call either case “regulation.” He believed in welfare for those unable to care for themselves and he believed in public education. So just what areas do you think he called for regulation.
And, please, stop calling me an ideologue. It only reveals to me that you’re not actually reading me to see what I wrote, but reading me to find things to react against. To say that going back to the regulatory era of 35 years ago would be economically harmful is not an ideological statement–it’s just a recognition that the economy has been more robust in the era since, producing considerably more wealth than we did in the prior 30 years. And likewise, it doesn’t take an ideologue to doubt that more government intervention is the obvious solution to a problem caused at least in part by unwise government intervention.
So let me finish by responding to your first line: Why are we sure that more government regulation is not the solution, even though we don’t fully understand the crisis? Because there is plenty of history to compare heavily regulated vs. lightly regulated economies, and in all cases the lightly regulated economies are more productive and make their citizens wealthier.
I would recommend reading Hernando De Soto’s The Other Path, to see how overregulation has strangled Latin American economies, to the harm of the citizens. And I am currently researching economic development in the Middle East. Dubai, which has had an open economy for over a century, has a GDP per capita of $37,500 (to the U.S.’s $45,000 per cap). Syria, which has had a regulated economy for most of the last century, first under the Turks, then the French, then under their own Baathis regime, has a GDP per capita of only $4,700. And it’s not the disparity in oil that makes the difference.
I’m not going to call you a rube and tell you to shut up. But as long as you continue to think that anyone who has actually read and understood Smith, and Ricardo are just ideologues, then it’s hard for us to have an intelligent conversation. The mark of an ideologue is someone who refuses to try for a deeper understanding of a problem–one who just pooh poohs two centuries of thought without actually knowing it.