Hope and Change: Promises to Keep, Divisions to Bridge, and Decisions to Make

President-Elect Obama will face difficult problems when he assumes office in January.

But doesn't that mean the some promises will need to be broken, and some divisions will grow deeper precisely because hard decisions need to be made in order to address questions of war, and economic instability.  Politics may be the art of compromise, but economic policy is not.  In fact, compromised economic policy is arguably what caused the economic insecurity we are currently dealing with.

What do you think an Obama presidency means for economic policy debates?

Comments

[Bob Murphy]

I think it means we are going to have a nice "experiment" as far as these things are possible. Under the Republicans it was always confusing, because they would cut marginal tax rates while borrowing to the hilt. I hope with Obama and a solid Democratic Congress we will get fairly pure interventionism and so it will be crystal clear whether it works.

I also predict that the views of Austro-libertarians will suddenly become more fashionable within "conservative" circles. Fans of Rush Limbaugh etc. love to hear free market religion when there's not a big-spending Republican in the White House.

[Sleeper]

Schumpeter's "March into Socialism" sums it up pretty much for me!

[Richard Ebeling]

It is always easy to assume either (a) "the sky is falling" (all board for the socialism express -- next stop European social democracy at its worst!), or, (b) "we've lived through this all before, and we will again" (the New Deal and the Great Society didn't ruin America, so neither will Obama and his Democratic majority in the Congress -- so more regulation and taxation, what else is knew?)

It is absolutely the case that the market has unbelievable adaptive ability in the face of cumulative government interventionism and welfare statism. Materially, we are living better now than decades ago, and a variety of civil liberties have been expanded for various groups and individuals (though not always without regulatory restrictions on others).

But this crisis is bringing out of the woodwork, both in America and other parts of the world, many opponents of a free(r) market order. Later this month we will have this international conference between what may be a relatively "united front" of European nations who want more heavy-handed economic controls on global and related markets, a U.S. lameduck government that has been interventionist in all its crisis and other policies, and a number of developing countries whose full agendas are as yet unclear.

It may be that policy differences and interests, and respective national politics will make the whole affair merely "show" that doesn't change the market landscape very much. On the other hand, who knows? And with a new administration taking office in January that surely is far more in sympathy with more regulated markets and social welfarism, it is all up for grabs.

Domestically, Obama has a large majority in Congress. Many policies that Austrians who are free market advocates consider damaging and counter productive may be passed.

E.g.,
(a) an acceleration into the national health care;

(b) more rigid and harmful environmental policies;

(c) renewed support for union power and thuggery (those who are old enough to remember the 1960s and 1970s recall the distortive effects unions could have with government help; indeed, during those decades, "Austrians" like Hayek, Haberler and Machlup, Hutt devoted a good deal of ink on page to point out the harmfulness created by union power);

(d) even more intrusiveness and manipulation of financial markets under Obama than McCain might have introduced, now with the government buying into shares of these institutions;

(e) huge public works projects on "infrastructure";

(f) transfers of federal wealth to state and municipal governments to tide them over due to their budget short-falls;

By the way, each of the ones I've listed -- and a lot more -- was in the second stimulus package that passed the House but failed in the Senate in September.

That failed package had a price tag of about $60 billion. Now the Democratic leadership is planning to put together a new stimulus package that contains these same programs, projects and activities, but would have a price tag of between $150 billion and $300 billion.

This will be the Democratic Party's Christmas bag of goodies for a vast array of special interest groups that have paid for their election. Yes, Virginia, there is a Santa Claus.

Of course, limiting all this not that much further down the road is the question: Where is the money coming from? The just ended Federal fiscal year closed with a half-a-trillion dollar budget deficit.

The projection is for at least a trillion dollar deficit for the current Federal fiscal year that ends in September 2009 -- not counting this planned new stimulus package.

Remember what we teach all our students in class. The government has only three ways of funding its expenditures: taxes, borrowing, or printing money.

There are limits to all three in the present situation. That "wall" may prevent some of these expanded interventionist and welfare statist programs from being implemented or grown.

Our task -- if I may wear both an "Austrian" hat and a classical liberal one at the same time -- is education and positive criticism. We need to explain how the current crisis came about, why it is not the fault of the market, and how more market-oriented solutions would get us out of it in less time and with less politicization of economic life.

And we must intelligently criticize the "liberal left" critique of the market and offer counter interpretations and policy analysis as events and government actions unfold.

What will it lead to? Well, I guess it is the wishful optimist in me, but I believe that in the end reality and truth cannot be denied and sometimes win out.

Richard Ebeling

[Dave Prychitko]

Just a consideration. There's much talk of redistribution. That may be a policy that won't go as far as Obama promises.

Yet, I hear so many people claim that he's a socialist (even Marxist!) by introducing redistribution. But we've had at least 80 years of redistributive policies! It all ramped up during the Progressive Era. (That's in large part what made it "progressive.") So this is nothing new. Look at the economists who formed the American Economic Ass., esp. Ely.

Now add onto it a whole host of farm support programs and other subsidies. State forest lands that are open to mining and logging. Chrysler bailouts, the protection of "infant industries" that continues through the middle-aged industries and even those that should be cut off from life support. All of these are redistribution policies, only without the label and the direct approach we see with tax increases, social security and so on.

This is nothing new. We are really, with Obama, talking about a marginal addition to a *huge* set of institutions that are already in place. So while that might support an "experiment" (the margins are nice in that regard) I still don't think this will be shown to be an utter failure.

After all, several authors on this blog have still clapped loudly that the U.S. economy has grown tremendously in spite of that. Pete is still optimistic about the future prospects for his kids. Pete Leeson denies (or really questions) the claim that the economy now is in terrible shape. So where is the clear failure of all these Post-Progressive Era interventions if the economy is still strong and stable?

Also: Obama isn't a Marxist at all. He is simply furthering, once again, what we've had in place for almost a century -- it's closer to Bernstein's "evolutionary socialism." These proposed and continued interventions are still just that; interventions into a market system. Finally, Bernstein's evolutionary socialist notion was to be a planned and guided evolution with a long-term fully-developed socialist telos. Keep your eye on the prize, so to speak.

In our case, although so so many of our institutions are the kinds that Bernstein would applaud, they truly did "evolve," but not by some guided plan or conspiracy, but instead largly as an unintended consequence of former interventionary problems and failures.

So, in my judgment, Obama is not by any means a socialist. I don't anticipate clear destructive results if he were to implement what he promises. I do expect him to try to encourage some kind of populism in the U.S. But I fear more the creeping fascism that Bush, Cheney and that crowd has -- also unintentionally -- created at the current time.

[First observation]

To me in his last speach he sounded somehow stern in some passages which made me think he might have some deeper cuts planned to save the economic situation. But that is just my guess.

[Bob Murphy]

Dave P. said:

"I don't anticipate clear destructive results if [Obama] were to implement what he promises."

I guess it depends on what you mean by "destructive." Did the New Deal have destructive results, in your book?

I think some of our differing views might be due to my experience working for Arthur Laffer. As you might expect, he has done a ton of empirical work looking at, say, what happened to California before and after Prop. 13, or what happened to the US stock market before and after the first-term Reagan tax cuts.

I had always "believed in" lower taxes, but I was stunned by how much of an effect you could see in the data.

If Obama slaps a huge windfall profits tax on oil companies, you are going to see a big decline in domestic production. Now it might not mean a big jump in prices at the pump, since demand for oil could keep falling with a global recession.

What I am really concerned about is that Bernanke doesn't suck out his unbelievable injections of base quickly enough, and then we get double-digit price inflation. Then Obama and the Democratic Congress stick it to the greedy gougers and impose price controls on milk and bread.

The supply-and-demand graphs we teach undergrads actually work. I realize it sounds goofy to say that, but I "believe in" them more, now that I saw lines at the gas pumps in Nashville a month ago after the hurricane (and officials here in Tennessee threatened to crack down on "gouging" and set up hotlines for citizens to report on evil gas station owners).

None of this is to suggest that McCain would have been preferable. As I alluded to in my original comment, this is actually better, because at least we will see intervention for what it is. McCain was not different in principle from Obama, but his policies would have been labeled "free market reform" while Obama's will be labeled "Marxism."

[Daniel J. D'Amico]

Alright so Steve's facebook status reads, "[Steve] thinks only the cold-hearted and historically ignorant could not be moved by last night ..." So I guess I'm both. I watched while the votes came in and the speeches were made by both McCain and Obama. Afterwards I felt sort of ripped off rather than moved or inspired.

For almost two years now this election has been all up in my face. It's the most important election of your lifetime!!! Admittedly the stakes were high. The debates touched on topics both big and small. In today's society there's no shortage of big topics: the war in Iraq, the war on terror, the war on drugs, the financial crises, immigration, health care, tax policy, foreign policy, etc... These were the main points of the debates, these were the main points of the campaigns, these were the main points of people's concerns throughout the long drawn out elections.

But last night all anyone seemed to talk about was race. It's like they changed gears on us and without telling us. We were told this was about the economy, the war, foreign policy, health care etc. But after all was said and done we were told it was a milestone for civil rights. Look how far America has come along, we now have our first African American president.

In response I say clearly not far enough and on matters of the most importance not far at all. Interpreting this as a great victory for tolerance, diversity, peace, civil rights etc. is to place our goals and aspirations for social change far too low. What did the content of the speeches and news coverage tell us last night? They told us that America is not willing to take a stand against War, death, oppression, or fiscal irresponsibility, but America is willing to take a stand against racism. While I agree that a stand against racism is a worthy stand and that it is progress, but I am unwilling to glamorize it as a major advancement achieved through politics.

This sign of progress does little, if not nothing for the many other and arguably more important issues plaguing the nation. Furthermore I think it is important to notice what is the true motivating force behind such progress even if it is relatively small progress. One commentator mentioned that Obama appealed to young voters and young voters – young people – see past race. I think in general this is true, but is not the result of progressive politics it is instead one of the many beneficial outcomes of market processes. Young people see past race because we are confronted with and participate within an inevitably diverse market society. The productive value, merit and potential of people from various races, ethnicities and creeds is an inescapable reality when you constantly engage in trade. In this sense the political strides made on the fronts of racial equity are lagging indicators of strides made in civil society years earlier.

To emphasize the achievement of Obama's campaign in terms of race - I think - cheapens much of what his campaign was trying to accomplish. The focus upon race in the speeches and commentary last night, struck me as the equivalent of people saying, "you're a pretty good ball player...for a girl." If this campaign and election were so energized in making progress away from racism than why was race so rarely mentioned earlier.

If McCain won I doubt any commentator would have been willing to say "well white as usual – he won because people aren't ready for a black president." I don't think commentators would have been willing to say it not only because it would be unsavory to say, but I think they would have been unwilling to say it because it seems so obviously false. To repeat, young people see past race, and this is so less because of the efforts of any individual civil rights leader and far more because of the beneficial consequences of social change through specialization and the division of labor.

If Obama is a good president it seems that the political machinery will be quick to take credit for helping the American people see past race, but if Obama is a bad president no one is going to be likely to pin it on his race. I think these two perspectives are using very different theoretical frameworks to understand politics, and I tend to favor the latter over the former.

[Roger Koppl]

I think Austrian liberals should set themselves to designing government policy. If we rest content with comparing the imaginable state of perfect liberty with the current bramble of controls, then we lose opportunities to improve policy. As Karen Vaughn has pointed out, in the past we tended to think governments should simply lift the smothering blanket of restrictions and the market will take care of everything. BPete’s work goes into this issue deeply. Formal and informal rules, making rules “stick” and so on. Thanks largely to Pete and his students, I think we’re now lots smarter about how to approach policy.

Let’s put our improved policy understanding to work. In particular, let’s think hard about how to design competitive governance mechanisms. The function (regulation for example) stays with the government, but we design a system of competition among government entities serving the function. Roberta Romano has thought hard about how to create competing regulatory bodies for financial instruments. (URL:
http://links.jstor.org/sici?sici=0044-0094%28199806%29107%3A8%3C2359%3AEIAMAT%3E2.0.CO%3B2-L) Hans Stoll has picked up on her work. My forensics stuff is another example, I think. (URL: http://www.fdu.edu/ifsa) Adam Smith attributed the common law to competing courts. I’d like to see a properly designed competitive alternative to the FDA, which lurched from “The answer is always no” to “I won’t say no.” Can we apply the principle of random overlapping jurisdictions to municipal policing?

In all the areas I’ve mentioned you have a relatively difficult design problem. I imagine that in most, perhaps all, of these areas we need to use experimental economics as a part of the design process. In any event, there’s lots of design work to do and I hope more Austrians will apply themselves to it.

[Roger Koppl]

Two notes on prior comments:

1) I think Dave Prychitko is right to "fear more the creeping fascism that Bush, Cheney and that crowd has -- also unintentionally -- created at the current time." Hear, hear! Thanks for saying that, Dave.

2) I like the issues Dan is plugged into, but I think he should realize that Steve Horwitz has a different set of memories. Like Steve, no doubt, I can remember vividly a very different America than the one Dan describes. That memory influences one's response to Obama's victory. I also think there is more of the bad old America left than Dan seems to allow, but that really is a separate point.

[Steve Horwitz]

Roger has me right. If Dan had seen the prior status message he would have seen this:

"I really really hope that the benefits of having elected a black man president outweigh what I fear is the damage that *this* black president's policies are likely to bring."

The later note was just to emphasize the positive.

And yes, it's a matter of historical context. Given what African-Americans have gone through on this continent for hundreds of years, and what they still faced in the early years of my own lifetime, to see a black face on the president-elect IS a grand historical moment, for both blacks and everyone else.

There was one crowd shot on CNN of the Obama speech, toward the end, and it was a familiar looking older black man wiping the tears from his eyes.

It took me a second to realize it was Jesse Jackson.

People who can't understand what it means to a man who marched with MLK to see a black man elected president, and who can't appreciate what that means for African-Americans and for us all, are missing something really really important here.

And now that those issues are out of the way... it's "game on" with a man who I think will be an awful president (and just slightly less awful than Senator "Hey you kids, get off my lawn!"). We have an obligation to criticize all of his policies that we think are wrong with all the vigor we can muster.

The racial history that was made will fade (or at least should), and we should be as hard on his mistakes as we would on anyone else. Once he's in office, let's judge him by the content of his policies, not the color of his skin.

[Dave Prychitko]

I found it a shame that Obama's grandmother had died just before he was elected.

[Steve Horwitz]

BTW, Will Wilkinson has it just about right:

http://www.willwilkinson.net/flybottle/2008/11/05/one-night-of-romance/

[Brian Pitt]

I certainly appreciate the issues that D'Amico mentions. However, I think that D'Amico is eliding how significant it is that Obama has circumvented the political pitfalls of black politics in order to shatter the glass ceiling. That Obama is the first African-American President-elect of the United States is indeed awe-inspiring; that he has discovered a political strategy that is (1) free of the us-versus-them politics that infects so much of black political life (and political life generally) and (2) has gained this level of support (98%) in the black community while not abandoning his message of unity is simply remarkable. An approach that I only pray that local, state, and federal black politicians look to employ.

In short, the market order is the driving force behind people (largely) being judged by the content of their character. But, the focus on race last night has a lot less to do with the analogy of "you're a pretty good ball player...for a girl," methinks, than people believing that human beings can sincerely have a change of heart on issues as sensitive as race (because time can heal wounds).

Btw, isn't the Obama message/win indicative of the "what can be" under a "Political Economy of Forgiveness?" (Boettke and Coyne, 2008: 207-219).

[John V]

Put shortly,

I think good and knowledgeable economists like Austan Goolsbee have had Obama's ear for a while now. Obama SOUGHT his counsel. That says something positive. He could have done A LOT worse among his liberal economist choices.

Goolsbee's going behind Obama's back to tell Canadians not to pay attention to his empty anti-trade campaign talk reveals a lot about Obama's more moderate stances, IMO.

I also think his strange position on health care...while not great...demonstrates some level of economic literacy and acknowledgment of reality that is sadly lacking among many on the Left.

His University of Chicago background will serve as a decent tether against his worst impulses and especially those his party.

I expect a more Bill Clinton-like president that, while more confident of the promises and benefits of intervention than classical liberals like me, is still open to market-based policies and a respect for some(though not ALL) economic principles. That's better than nothing.

In short, I suppose a liberal who favors behavioral economics and libertarian paternalism is better than a liberal who doesn't think economics matters too much and is willing to slice, dice, shove and experiment his way into very muddled and dangerous waters...like FDR did or like Hillary would have.

I guess that is the silver lining I see.

Obama is at least "aware" of economic fundamentals...though he may not respect the true implications of all of them. But that is better than the alternatives of economic illiterates like Reid and Pelosi and arrogant technocrats like Hillary.

I expect a couple of crucial vetoes in his first 90 days on matters of finance. (at least I hope)

[Steve Horwitz]

Dan:

http://blanksslate.blogspot.com/2008/11/president-elect-barack-obama.html

He's a black libertarian.

[Daniel J. D'Amico]

I agree with this point by Roger:

"2) I like the issues Dan is plugged into, but I think he should realize that Steve Horwitz has a different set of memories. Like Steve, no doubt, I can remember vividly a very different America than the one Dan describes. That memory influences one's response to Obama's victory. I also think there is more of the bad old America left than Dan seems to allow, but that really is a separate point."

I admit I'm young and can't remember all the things that Steve can (like dinosaurs and small pox... jk ;)). All the more reasons that we should be attune to what caused such changes. I argue it was advancements in the division of labor rather than politics.

The second point speaks to the first. There is still much of the bad America out there. All the more important that we should recognize how insignificant in power despite how significant in population they are. And what sorts of things really keep them in check.

Finally, I wouldn't have opened with a reference to Steve's status had I read his previous one.

[Sukrit]

The easiest way for Austrians to have greater influence and slow the growth of government in the short/medium-term is to sell out and become neoclassical economists.

Great comments on this thread by the way.

[Peter Boettke]

Sukrit,

How does your argument work about the need for Austrian economists to sell out and become neoclassical economists as a vehicle for slowing the growth of government?

First, how do you define neoclassical?

Second, how exactly are Austrians supposed to be gain influence within neoclassical economics by becoming another neoclassical economist?

Third, how is it exactly that neoclassical economics influence the public debate to slow the growth of government?

Pete

[Sukrit]

It was a flippant remark, I don't encourage anyone to sell out on what they truly believe in!

However, I thought it was generally agreed that the Chicago school has been more influential than the Austrians because they used the methodology of the mainstream? They blended in, published in top notch journals, used it to get positions of prominence - and then some of them used that prominence to give credibility to their ideological beliefs. I think Milton Friedman singlehandedly made it respectable to advocate the legalization of drugs, for example.

They are less radical and less principled, but more influential because they worried less about the philosophy of their discipline and impressed the public with their "value-free science".

Neoclassical economists can influence the debate to slow the growth of government because government often seek their advice in times of crisis.

As for your second question, I don't know, because I'm not an economist. So what I am about to say could be all wrong. But I suppose if an Austrian economist could use the neoclassical framework to "prove" the Austrian theory of the business cycle or other Austrian insights, then that would distinguish an Austrian neoclassical from the standard economist. The key is to speak the language of the mainstream, but to use it for your own purposes.

[Brian Baugus]

While part of me believes tha there is very little difference between Obama and McCain or even the Democrats and Republicans I would have to say that my reading on the situation is that Obama's instincts are more interventionist then any president we have had recently. Most have been interventionist to some degree few seem to embrace it with such openeness as Obama. That said I believe there will be a tension between the intervene all the time faction and the intervene only some of the time wings of the Democratic party. Unfortunately the talk of stimulus packages and Obama's inability to name one program he would cut in face of the financial industry handout has me concerned. Time will tell which faction wins and how the Opposition (Repuiblicans and others) respond.

[Peter Boettke]

Dear Sukrit,

I disagree with you. I have taught at NYU (a top 10 department at the time), and been a visiting fellow or visiting professor at Stanford and more recently the LSE. The difference between the vast majority of people at those institutions and those within the Austrian tradition since Mises and Hayek is simply put talent. It is not Austrian economics per se that is the problem, it is attracting the best and the brightest in the field of economics. When that doesn't happen because those working in the field do not do a good enough job presenting the work in a dynamic and exciting matter, the fault is not the ideas but those working with those ideas. Look in the mirror for the difficulties these brilliant ideas have, don't look outside of that.

Now if you look at fields outside of economics, such as law and business --- you can see very successful individuals working with Austrian ideas and making major headway --- Randy Barnett and Richard Epstein (law) and Amar Bhide (business) for example.

Economics does have its challenges, but those attracted to Austrian ideas need to figure out how to communicate to the highest level of those in the profession. James Buchanan certainly did. Israel Kirzner has had his moments. George Selgin and Larry White have. And Peter Leeson and Chris Coyne are succeeding.

No excuses and no need to change perspective. Just do good work, and continually strive to do better work. There are professional issues, but none that are not those that can be overcome.

Pete