Why I'm Concerned About an Obama Victory:

Ross Douthat summarizes my main reason for fearing what now looks like a near-certain Obama victory. And it has nothing to with with Bill Ayers, Jeremiah Wright, or any of Obama's other personal foibles or past associations. It certainly isn't based on any great love for John McCain, who I have many reservations about. For what it's worth, I like the idea of a black president, believe that Obama is an admirable person in many ways, and have doubts about McCain's temperament similar to those expressed by George Will. Nonetheless, I fear that the conjunction of an Obama victory, a strongly Democratic Congress, and a major economic crisis will produce a massive and difficult to reverse expansion of government:

[W]hile success is never final, some successes are more final than others. The election of Franklin Delano Roosevelt in 1932 gave birth to an administrative state that has never been rolled back, and seems unlikely be rolled back in my lifetime. So that was a pretty final victory, as political victories go. Or again, while Ronald Reagan's election in 1980 had less enduring consequences than FDR's, at the very least it put its stamp on thirty years of American history in a way that, say, the election of Jimmy Carter or George H.W. Bush did not. And the convergence of an economic crisis and complete Democratic control of Washington should alarm even those conservatives eager to wash their hands of the GOP. The best reason for even the most disaffected right-winger to root for a McCain victory is simple: To the extent that much of the progressive agenda is a program in search of a crisis to justify its implementation, an election that delivers a liberal candidate who's adored by the media to White House, gives him huge majorities in both houses of Congress, and presents him with a worldwide state of emergency in which to govern, has the potential to be not just another loss for conservatives, but a once-in-a-generation defeat.

We know from past history that economic crises are a major opportunity for expansion of government power. Robert Higgs' book Crisis and Leviathan is a good discussion of the basic dynamics. We also know that divided government tends to impede the growth of the state, while united government facilitates it. The combination of united government and a major economic crisis is likely to lead to a great expansion of government, just as it did on several previous occasions such as the 1930s. It only remains to add that Obama - and most of the rest of the Democratic Party - tend to be very pro-government ideologically. As far as I can tell, Obama proposes major expansions of government regulation and spending on almost every big domestic issue, and doesn't propose to retract government in any significant way, except on military intervention in Iraq. Obama's record in the Senate (where he was the 10th most liberal senator) and in the Illinois state legislature (where he was more liberal than 73% of his fellow Democrats) shows him to be a big government liberal, not a relative moderate like Bill Clinton during his presidency.

I say this not so much to rally support for McCain (whose candidacy I think is nearly dead anyway), as to outline my fears about what is likely to happen over the next four years. I understand, of course, that none of this is a problem for those who want a major expansion of government power or are at least indifferent to it. But I do think it should be of concern to those libertarians or small government conservatives who welcome an Obama victory. It should also matter to moderates and liberals who recognize that massive expansions of government power in a time of crisis provide major opportunities for abuses of power and interest group power grabs at the expense of the general public - both of which happened on a large scale during the Great Depression.

Obviously, nothing is certain. It could be that Obama's agenda will be derailed by a massive political blunder on his part or by some unexpected event. It could be that the Republicans will somehow come back strong in the 2010 midterm elections. It could be that the economy will recover very quickly, curtailing Obama's window of opportunity. I'm not certain that a major expansion of government will actually occur if Obama wins. But I do think it's a strong possibility - certainly a greater than even chance.

UPDATE: University of San Diego lawprof Michael Rappaport, who was previously inclined to conclude that an Obama victory was the lesser of the available evils, is now seems to be changing his mind because of concerns similar to those expressed in this post. He writes:

With the financial crisis we are facing, an Obama Presidency combined with a strongly Democratic Congress would be much worse than the situation we were previously facing. Thus, it makes more sense to avoid it, even if it means electing McCain and all the damage that will do.

To put the point differently, before the financial crisis, there was a realistic chance that electing Obama and a Democratic Congress would be Jimmy Carter in 1976 or Bill Clinton in 2000 [correction: presumably he means 1992 - IS] — presidencies that soon led to Ronald Reagan and Newt Gingrich. But with the financial crisis, there is a much greater chance that electing Obama and the congressional Democrats will be like electing FDR in 1932. Obama could use the emergency to transform the country in a very bad way. And, given the crisis and Obama's political skills, it is quite possible that the country would reelect him, even if he does badly — which, after all, is what happened when FDR was reelected during the New Deal in 1936. (In 1936, the unemployment rate was still 17 percent.)

I haven't made up my mind yet. After all, McCain really is awful. But that is the way I am leaning.

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Fear Itself.

Many commentators have argued that the Bush administration’s response to 9/11 was driven by fear. They were never precise about what they meant, but a number of interpretations suggested themselves. (1) That members of the public panicked and demanded that the government “do something” regardless of whether a particular action was rational. (2) That members of Congress panicked and therefore acquiesced in actions by the executive that had dubious justifications. (3) That members of the executive branch panicked and adopted measures that bore no relationship to their goals. Various unpopular measures—detentions in Guantanamo Bay, harsh interrogation techniques, even the invasion of Iraq—were blamed on either a panicky government or (more commonly) a rational government taking advantage of the public’s irrational fears to expand executive power. The theory, never fully articulated or explained, seemed to be that the executive’s thirst for power could never be slaked; its goal to expand its authority infinitely could best be accomplished when the citizenry is frightened and unable to exercise its critical faculties and thus grateful for any evidence of government action, however implausible the case that it might accomplish something of value.

Many legal academics claimed that courts should serve as fire walls against the conflagration of fear. When the government locks someone up, the courts should realize that in many cases either government officials have panicked or are violating someone’s civil liberties merely to assure frightened citizens that something is being done. For that reason, courts should treat the government’s justifications with skepticism, and never ever trust the executive branch.

These arguments have not yet surfaced in the current crisis. The specter of fear is everywhere, not just on Wall Street. And the scale of the government’s reaction is no less than what it was after 9/11—that is what probably scares ordinary people the most. Yet no one who believes that the government exploited fears after 9/11 to strengthen its security powers is now saying that the government is exploiting financial crisis fears in order to justify taking control of credit markets. No one who thinks that government would use fear to curtail civil liberties seems to think that government would use fear to curtail economic liberties. Why not?

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Exploiting Crises to Expand Government and Curtail Civil and Economic Liberties:

In a recent post, co-blogger Eric Posner writes that:

The specter of fear is everywhere, not just on Wall Street. And the scale of the government’s reaction is no less than what it was after 9/11—that is what probably scares ordinary people the most. Yet no one who believes that the government exploited fears after 9/11 to strengthen its security powers is now saying that the government is exploiting financial crisis fears in order to justify taking control of credit markets. No one who thinks that government would use fear to curtail civil liberties seems to think that government would use fear to curtail economic liberties. Why not?

Perhaps Eric means to say merely that very few people who criticized the Bush Administration's reaction to 9/11 are now concerned about the expansion of government power in the present economic crisis. But it isn't true that "no one" has. I myself have been critical of the Bush Administration's claims of virtually unlimited executive power in the aftermath of 9/11 (see, e.g., here). And I have also warned repeatedly that the present economic crisis presents dangerous opportunities for government power grabs that curtail economic liberties and benefit powerful interest groups at the expense of the general public (e.g. - here, here, and here). And my position is far from unique. Indeed, it is similar to that taken by most libertarian commentators. The median libertarian public intellectual is probably even more skeptical than I am about both post-9/11 security measures and the federal government's policies in the current crisis.

In both the 9/11 case and the present crisis, I don't think it is merely a case of government officials cynically manipulating fear to curtail freedom in ways they know to be unjustified. Rather, I think that they, like most of the rest of us, naturally believe that expanding their own power and influence is also in the public interest. Crisis situations give greater scope for this natural bias by inducing fear in the general public and diminishing skepticism about government power grabs. Therefore, crises often lead to enormous - in many cases excessive - expansions of government power. The risk is heightened by widespread political ignorance, which makes it difficult for the public to assess which "emergency" measures are genuinely necessary. See here for a discussion of how political ignorance helped pave the way for various harmful policies during the Great Depression.

Some emergency expansions of government power may be defensible. But healthy skepticism is warranted during both economic and national security crises. And not everyone has been remiss in applying it.

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Fear Itself, Con't:

In a recent post, Eric Posner asks a very interesting question:

No one who believes that the government exploited fears after 9/11 to strengthen its security powers is now saying that the government is exploiting financial crisis fears in order to justify taking control of credit markets. No one who thinks that government would use fear to curtail civil liberties seems to think that government would use fear to curtail economic liberties. Why not?

Putting aside the question of whether it's strictly correct to say "no one" (see Ilya's response, here), I think Eric is on to something important, and I think I have the "answer" (sort of). The answer is: the vast majority of people place economic liberties on a decidedly lower plane than they place "civil" liberties.

Examples of this are everywhere. It's one of the reasons why people who believe strongly in economic liberties get so angry in law school -- it's not just the way the Supreme Court has basically stripped away any constitutional protection for economic liberties while waxing poetic about civil liberties, it's the way pretty much all of the professors and students seem to think this is perfectly sensible. [And please note that I'm not saying that I endorse this state of affairs -- I was one of those angry law students, actually. Just that it is what it is]

I realize this doesn't really answer Eric's question (hence the quotation marks above); it simply restates it: So why do so many people think that economic liberties are of lesser significance than civil liberties?. But it does so in a useful way, because I think there's a reasonably clear answer to the question when it's posed that way. The answer is: 1933.

I was thinking about this a few days ago when I read Ilya's recent posting about why he is worried about an Obama victory, in the course of which he quoted (approvingly) from UCSD law prof Michael Rappaport:

"Before the financial crisis, there was a realistic chance that electing Obama and a Democratic Congress would be Jimmy Carter in 1976 or Bill Clinton in 1992 — presidencies that soon led to Ronald Reagan and Newt Gingrich. But with the financial crisis, there is a much greater chance that electing Obama and the congressional Democrats will be like electing FDR in 1932. Obama could use the emergency to transform the country in a very bad way. And, given the crisis and Obama's political skills, it is quite possible that the country would reelect him, even if he does badly — which, after all, is what happened when FDR was reelected during the New Deal in 1936." (my emphasis)

What struck me about this was that, surely, most people would view the Obama = FDR analogy as a favorable one - Obama would like nothing more, obviously, than having people think he is the second coming of FDR. I am fairly certain that the vast majority of people in this country think FDR and the New Deal saved the U.S. from ruin, transformed the country in a fundamentally good way, and laid the groundwork for 75+ (we should be so lucky to get that +) years of unprecedented prosperity. Did it interfere with our economic liberties? Absolutely. Was it worth the cost? Most people -- unhesitatingly, I think -- would say it was.

Obviously, that doesn't make Ilya's view "wrong" -- but it is what it is, the view of the vast majority of people in this country.

[I'm not sure, to be candid, which camp I'm in, myself; I find Ilya's position very powerful, conceptually - but I also think FDR saved the country from ruin. Notice that it's not "inconsistent" to place economic liberties on a lower plane than civil liberties, any more than it is inconsistent to say French food is good and English food (even though they're both "food"). It just requires construction of a meaningful distinction between the two types of liberty - way beyond the scope of this conversation.]

But regardless of my own position on the matter, I think it's responsive to Eric's original question. It's not that people think the government might not "use fear to curtail economic liberties," it's that they don't care as much about economic liberties; they're more willing to tolerate error in the assessment of the crisis when the cost is a curtailment of economic, rather than civil, liberties.

And a final thought: Eric's put his finger on the very thing that made FDR's famous "we have nothing to fear but fear itself" line so fabulous: It's hard to argue that the government is fomenting fear to enhance it's own power when the president is not only asking everyone to be fear-less, but suggesting that fear-lessness is the key to solving the crisis.

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Richard Epstein on Obama:

Libertarian University of Chicago law Professor Richard Epstein has some interesting thoughts about Barack Obama in this column:

My Obama number is one. I know him through our association at the University of Chicago Law School and through mutual friends in the neighborhood. We have had one or two serious substantive discussions, and when I sent him e-mails from time to time in the early days of his Senate term, he always answered in a sensible and thoughtful fashion. And yet, for assessing the course of his likely presidency, I don't know him at all....

The dominant trope is that he will be a pragmatic president who will move in small increments toward the center, not in bold steps toward the left.

But is it all true? The short answer is that nobody knows. Virtually everyone who knows him recognizes that he plays his cards close to the vest, so that you can make your case to him without knowing whether it has registered. At this point, my fear is that the change in office will not lead to a change in his liberal voting record, as reinforced by a hyperactive Democratic platform. My great fear is that a landslide victory will give him solid majorities in both Houses of Congress, so that no stalling tactics by Republicans can slow down his legislative victory procession. At that point his innate pragmatism will line up with his strong left-of-center beliefs on issues that have thus far been muted during the campaign.

Put otherwise, Obama's vague calls for change that "you can believe in" are, to my thinking, wholly retrograde in their implications. At heart, he is an unreconstructed New Dealer who can see, and articulate, both sides on every question--but only as a prelude to championing the old corporatist agenda with a vengeance.

Unlike Epstein, I don't know Obama personally. But his fears are similar to mine. I don't believe that Obama is some kind of ogre, socialist, or terrorist sympathizer. He seems like a skillfull leader and a thoughtful person. And he has repeatedly shown that he is willing to prioritize his own political success over any ideological or personal agenda; in that respect, he's not much different from most successful politicians. I do, however, fear that the combined impact of Obama's left-wing policy views, decisive Democratic control of Congress, and a crisis atmosphere will lead to a large, difficult to reverse, expansion of government. If Obama were checked by a Republican Congress, as Bill Clinton was, I would be less concerned. But such is not likely to be the case. The danger of an Obama presidency is not so much the man himself as the political environment he is likely to have around him.

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Obama Chief of Staff Hopes to Exploit the Economic Crisis to Expand the Growth of Government:

In earlier posts (e.g. - here and here) I have emphasized the risk that the combination of economic crisis and unified Democratic control of Congress and the White House would lead to a vast expansion of government. It looks like key Obama advisers and congressional Democrats are thinking along the same lines. As Obama Chief of Staff Rahm Emanuel puts it, the crisis is "an opportunity to do things you could not do before . . . You never want a serious crisis to go to waste." The WSJ article from which the quote comes makes clear that the "things" Emanuel has in mind are government policies that "pick winners" by subsidizing particular industries on a massive scale - as Congress is already doing with the finance industry, auto industry and others (HT: David Boaz).

Given the serious flaws in this kind of central planning, it is highly unlikely that even a well-intentioned federal government could do a better job than the market in choosing which industries to fund. On this point, F.A. Hayek's critique of government planning is still relevant - even more so than I thought when I defended Hayek's continuing relevance earlier this year. In the real world, of course, it is highly unlikely that government planning decisions will be determined by experts whose only concern is the public good. Rather, politically powerful industries will use their influence to lobby for bailouts and other government assistance that will probably be denied to the politically weak - irrespective of the true merits of helping the industries in question.

Interest group pressure has already played a key role in the congressional vote on the finance industry bailout, and it is likely to be equally important in structuring the massive future bailouts to come. Once Obama takes office, we are likely to see some $500 billion to 1 trillion in additional bailout spending - and that may be just for starters. Interest groups will play a major role in allocating this money, and they are already ramping up their lobbying efforts.

The end result will probably be an enormous transfer of resources from taxpayers and wealth-producing industries to interest groups with political leverage. That is likely to serve the interests of those groups and of the political leaders in charge of doling out the government largesse. But it will also impede economic growth by transferring resources away from productive firms to those that are failing.

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Larry Summers Channels Gordon Gekko:

Obama economic adviser Larry Summers is sounding like Gordon Gekko these days, arguing that we need more "greed" to revive the economy (HT: Instapundit):

“In the past few years, we’ve seen too much greed and too little fear; too much spending and not enough saving; too much borrowing and not enough worrying,” Summers said Friday in a speech to the Brookings Institution. “Today, however, our problem is exactly the opposite.”

In remarks to a private dinner at the U.S. Chamber of Commerce on Wednesday, Summers was even blunter, according to an attendee: “Before, we had too much greed and too little fear. Now, we have too much fear and too little greed.”

It definitely reminds me of Gordon Gekko's famous "greed is good" speech from Wall Street, where he said that "greed — you mark my words — will not only save Teldar Paper, but that other malfunctioning corporation called the USA." However, Summers is wrong to suggest that American investors and corporations have lost too much of their greed. To the contrary, the constant lobbying of every interest group under the sun for more and more government bailout money suggests that they are just as greedy as ever. Even firms that have already received a hefty dose of handouts are lobbying for more. The problem, of course, is that their greedy impulses are being channeled into the unproductive activity of lobbying Congress for subsidies rather than into the development of more and better products for consumers.

In and of itself, greed is neither bad nor good. The key question is whether it is channeled towards socially beneficial activity that increases wealth and promotes economic growth or whether it is directed towards lobbying the government to take away money from one set of interest groups and direct it to another. At this point, it is often easier for corporations to satisfy their greed by lobbying for government funds than by engaging in productive activity. As Gordon Gekko put it in his speech, "[t]he new law of evolution in corporate America seems to be survival of the unfittest." Failing firms are using their very failures as justification for seeking bailouts.

It is also ironic that Summers cites an excess of "fear" as one of the main dangers facing the American economy. Ironic because the administration he serves has itself been stoking that fear in order to undercut opposition to its programs. As White House Chief of Staff Rahm Emanuel puts it, the crisis is "an opportunity to do things you could not do before . . . You never want a serious crisis to go to waste." An obvious corollary to this notion is that the "opportunity" will be even bigger the more "serious" people believe the crisis to be.

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The Coming Explosion of Federal Spending:

My George Mason colleague Veronique de Rugy has an excellent article on the explosion of federal spending built into the Obama Administration's budget plans for the next decade. As Veronique points out, there will be massive increases in both spending levels and the deficit even under the administration's optimistic projections, which unrealistically assume extremely high rates of economic growth, fail to consider much of the administration's proposed increases in health care spending, and also assume that all of the "temporary" stimulus spending will be completely phased out - despite long experience showing that it is extremely difficult to cut budget items once spending on them has increased. Even the administration's optimistic calculations predict a deficit of $712 billion in 2019 (compared to $455 billion in 2008). The administration also predicts that nonmilitary federal spending will be 17% in 2019, about 15% higher than in 2008 and some 30% higher than in the last year of the Clinton Administration. The Democratic-controlled Congressional Budget Office has reached even more pessimistic conclusions in its analysis, which uses more realistic growth projections.

Back in October, I expressed my fear that the combination of an Obama victory, simultaneous Democratic control of Congress and the executive branch, and the economic crisis, would lead to a massive expansion of government. Sadly, that prediction seems to have been vindicated.

It's true that Obama's spending policies are in some respects a continuation of Bush's. The Bush Administration also presided over massive increases in federal spending and regulation, and I often criticized them for it (e.g. here and here). However, Obama's spending plans far exceed even Bush's dubious record. Justifying Obama's spending proposals by reference to Bush is much like an already obese man claiming that upping his consumption of hamburgers to twenty every day is fine because he spend the last eight years eating ten per day.

Liberal Washington Post economics columnist Robert Samuelson makes some related points in this op ed. Samuelson also considers the clever political strategy behind the Administration's spending policy:

One reason Obama is so popular is that he has promised almost everyone lower taxes and higher spending. Beyond the undeserving who make more than $250,000, 95 percent of "working families" receive a tax cut. Obama would double federal spending for basic research in "key agencies." He wants to build high-speed-rail networks that would require continuous subsidy. Obama can do all this and more by borrowing.

Consider the extra debt as a proxy for political evasion. The president doesn't want to confront Americans with choices between lower spending and higher taxes — or, given the existing deficits, perhaps both less spending and more taxes. Except for talk, Obama hasn't done anything to reduce the expense of retiring baby boomers. He claims to be containing overall health costs, but he's actually proposing more government spending...

Implicitly, the administration is hoping to exploit voters' political ignorance. If voters were well-informed about federal budget and tax policy, they would understand the contradiction between the Administration's plans to massively increase spending and its tax cut promises. At some point, the bill for all that debt will have to be paid in the form of either inflation or massive tax increases that go well beyond "the rich." But since most citizens are "rationally ignorant" about politics, they are likely to be unaware of the problem. Thus, Obama and other politicians can promise massive spending increases while at the same time promising tax cuts, and reap political benefits for doing so. Of course there will be political fallout for whoever is president in 2020 and has to face the resulting serious fiscal crisis. But that is of little concern to today's incumbents, who are understandably focused on their own more immediate political future.

Obama is far from the first political leader to exploit public ignorance. Certainly, the Republicans have used similar tactics in the past, including under the Bush Administration. That fact, however, doesn't make our current situation any better.

UPDATE: It's important to recognize that the gargantuan deficits and looming fiscal crisis likely to result from the Administration's spending plans are just one part of the danger we face. Such massive increases in federal spending also exacerbate the more general problems caused by expanding government control over society. In particular, growing federal spending and regulation will make it even more difficult for rationally ignorant voters to impose meaningful democratic control on public policy. And they will provide numerous opportunities for interest groups to exploit the growth of government for their own benefit, at the expense of the general public.

I discuss both these dangers in more detail in the January post linked earlier in this update.

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