Obamanomics

Tom Hundley had a long piece in the Chicago Tribune on Sunday describing the influence of the University of Chicago on Barack Obama.

The most interesting part comes near the end, where law professors Cass Sunstein and Richard Epstein spar over whether Obama really believes in free markets.

Sunstein says, “As Nixon went to China, Obama will go to deregulation.” Epstein says Obama “has never met a mandate that he would vote against.”

Epstein then goes on to describe his prediction for the Obama economics team:

Obama comes from the tradition that thinks you can get your way on social justice and economic issues without affecting productivity very much — and that’s simply living in a dream world. … [Obama and his economics team] are very smart, but the problem is these high-I.Q. guys always think they can square the circle; they always believe they can beat the system with a cleverer system, and they always fail.


C. Larity

It was very discouraging (as an ardent Obama supporter) to see some of Obama's cabinet appointees. Daschle was one of the worst, but luckily he managed to stumble over that one on his own.

Geithner seemed nearly as bad, and although it's early and he's clearly overwhelmed with the job, I'm unimpressed with his plans. I do like that he gets in jabs at Krugman's insanity, though.

Brion Emde

"...but the problem is these high-I.Q. guys always think they can square the circle; they always believe they can beat the system with a cleverer system, and they always fail."

Isn't this a description of the last 10 years?

A clear-cut case of projection: unconsciously attributing to others what is totally yours.

Wow!

Mike B

Well doesn't fixing many types of social issues generally increase growth and productivity? People who are healthy don't miss work. People who are educated make better choices, impose lower social costs and invent new products. The belief is that our system being held at a sub-optimal state by entrenched interests that seek to prevent their own loss at the expense of everybody else's gain.

The trick is hitting the sweet spot. To much regulation and meddling will result in European style stagnation. Obama and his advisers will be able to benefit from hindsight in both the costs of filing to regulate that have become apparent in the last 30 years as well as the lessons in over regulation. At this point they can take the enviable position of being able to fix what's clearly broke and leave alone what clearly works.

Justin Harper

I have to disagree with Epstein here. Obama would not vote for *or* against any mandates- he would vote "present"

P. Shah

Last year, the University of Chicago Federalist Society actually had a debate between Professors Epstein and Sunstein titled "Should Conservatives Support Obama?"

It was a pretty interesting debate (with Epstein demolishing Sunstein, IMO), which people can listen to here if they want:

http://federalist.uchicago.edu/podcasts/080303_obama.mp3

Sebastian Jaen

You can change the system, the problem is that probably you won?t see it.

Colin

"Well doesn't fixing many types of social issues generally increase growth and productivity?"

This assumes that government has the power to fix social ills.

Since we began the War on Poverty the number of people in poverty has basically flatlined. The biggest poverty reduction act of the last 20 years was welfare reform which reduced the role of government in eliminating poverty.

Also, there is little reason to think that more government regulation or spending will help improve education. The correlation between the establishment of the Department of Education and educational outcomes is, if anything, negative.

To the extent can government can promote improvements it is to be found in largely getting out of the way. Reducing its size and scope to better promote economic growth and enrichen society is the best path to dealing with issues such as poverty, health care and education.

AMG

Mike B,

Why do you assume that the increase in productivity outweighs the cost of fixing the social issue?

AMG

Our government has done a fine job of showing how you can spend $200 thousand to get someone a job that will pay them $40 thousand per year, which is more than their current $25 thousand per year job.

Luke

I love Justin Harpers comment. You know President Obama had the power to vote against Bush but never did just voted present.

For better of worse our world will one day change.

Greg

I wish I could remember where I found this. Perhaps it was on the Freakonomics Blog:

The law of unintended consequences is what happens when a simple system tries to regulate a complex system. The political system is simple, it operates with limited information (rational ignorance), short time horizons, low feedback, and poor and misaligned incentives. Society in contrast is a complex, evolving, high-feedback, incentive-driven system. When a simple system tries to regulate a complex system you often get unintended consequences.

More generally, when regulation pushes against incentives, incentives tend to push back creating unintended consequences. Not all regulation pushes against incentives, some regulations try to change incentives but incentives are complex and constraints change so even incentive-driven regulations can have unintended consequences.

Does the law of unintended consequences mean that the government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble (no trying to remake man and society) and the hurdle for regulation should be high.

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rbblum

Willing to bet if President Obama were to input all the ideological data of his vision for America into the IBM supercomputer (Roadrunner, capable of processing more than 1 petaflops per second), he would still not accept the outcome that the end results just do not compute for a sustainable financial republic.

David S.

The _Chicago Tribune_ article repeats some negative claims by Naomi Klein about Milton Friedman. There is a rebuttal here, should anyone be interested:

http://www.reason.com/news/show/128903.html

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Dave S

JoyLuck76

Greg -

That also something you might have read in "Nudge: Improving Decisions About Health, Wealth and Happiness" which was co-authored by Cass Sunstein (the same Sunstein referenced in the post) and Richard H. Thaler. I highly recommend that book, by the way, if you haven't happened to have read it as yet.

charles

Obama would be late to the vote.

Justin James

@Colin (#7) - Yes, the poverty rate has "flatlined". Too bad the government has held the formal line that defines "poverty" at the same spot for so long! The reality is, if you actually readjust the poverty line to account for inflation (particularly the cost of housing... thanks to the bubble, housing is even LESS affordable!), more people live in poverty now than before.

J.Ja

hal

@colin (#7 and j.ja (#16)

A recent longitudinal study done in LA shows that over time the poverty RATE remains the same, but the people in poverty change. In any one year about 1/11th of those in poverty increase income (through education, promotion, entrepreneurship, marketing) enough to move out of poverty. The study was completed two years ago, hence not expecting what happened this year. But it shows that aspirations and movement toward the "American dream" are still alive and succeeding.

Poverty might never go away, but being poor can and is being overcome by those who take advantage of opportunity. And many times it is government that provides the opportunity. My family certainly remains appreciative the GI Bill allowed me to be the first in 4 generations to complete college and thus earn a better living than my ancestors. We equally appreciate the predominantly taxpayer funded public institution (college) that provided a world class education. And the part-time job in a research laboratory (government funded by grants) so my family could eat. And the college housing that gave me cheap rent. Today, I gratefully pay taxes so that others can have that opportunity. An I hope all the "government is bad" and government is incompetent" believers remember that these aren't just numbers. If we are not united in purpose and shared propsperity as a nation then we might just as well descend straight to anarchy wihout having to wade through the hell of economic libertarianism.

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thecools, UK

"To much regulation and meddling will result in European style stagnation."

Oi! bit harsh, its not so bad here...

MacGruder Chipplewick

He seems sincere, but sincerity doesn't mean you're right. The problems are too complex and beyond the ability of people to regulate. A buyer-seller market is the most efficient way to determine the true cost of things, not by government decree.

Stephen

This analysis is dead on. Let's talk in plain terms. You must create opportunities for smart, industrious people to get rich. If you diminish incentives or create barriers, then France and Sweden here we come. Why else would this country be the true economic powerhouse (historically) that it is?

Encourage the poor, the middle class, and the rich to become wildly rich or even richer. Not everyone will,this will raise the standard of living for everyone.