September 11, 2012

The Preacher-in-Chief

The president’s DNC speech was long on rhetoric and short on coherent policy.

Last week at the Democratic National Convention, President Barack Obama delivered two acceptance speeches: one spoken and the other written. The oral presentation was a vintage Obama performance. It had the cadence of a fine homily or sermon. The speaker did not disown his own failures or shortcomings. He admitted them, only to quickly claim that they were small in comparison to those of his heartless rivals in the Republican Party. The crowd responded to his speech enthusiastically. It may not have been Obama’s best live performance, but it still showed that the man had not lost his touch with a sympathetic audience.

But then there was the written speech, which is bland, unfocused, and uninformed. Its excessive use of superlatives and hyperbole suggests that he is deeply out of touch with the world; he speaks of limitless possibilities for the United States at a time when the standards of living have been declining for over the past four years. Sunny optimism may work in good times, but for those who care about content, not cadence, the president needed to introduce a dose of realism into his speech.

 Epstein  
 Illustration by Barbara Kelley

The constraints of scarcity are always with us, especially in hard times. Difficult choices have to be made, both individually and collectively, about goods that everyone wants but not everyone can have. To be credible on policy, Obama had to explain that he, as president, knows how to grow the pie, rather than just divvy it up.

Yet, the president did not address the question of means—how we could regroup as a nation. Instead, he listed aspirations that were over the top. For instance, if we have a public education system that is in distress, it is not wise to announce a proposition that is in all likelihood false: “I promise you—we can out-educate and out-compete any country on Earth.” It would have been far better for him to say that we have not reached our full potential as a nation and need to do better. But time and again, the president shunned marginal improvements in favor of grand objectives which neither he nor any other president could ever deliver. It sounds good, but reads badly.

The president also promised to “fight to restore the values that built the largest middle class and the strongest economy the world has ever known.” But a convention is a poor bully pulpit from which to govern. The nasty question is what kinds of policies he can support in order to deliver on that promise. The past history, from both parties, is hardly reassuring on education because the most conspicuous correlation of the past 50 years has been between rapid increase in spending-per-pupil and at most a modest increase in student achievement that has not kept pace with many of our national rivals.

Additionally, Obama did not address sensible structural reform in his speech. The dangers that public unions pose to the educational system were not mentioned in his speech. Nor did he comment on the huge struggles in Wisconsin and Ohio over the status of public unions and public pensions. The possibility of using charter schools and vouchers to break the state-run monopoly over education was not discussed either.

The president’s speech was equally lacking when it came to the topics of free enterprise and international trade. At the grand level, the president is always effusive in his praise for free markets—“the greatest engine of growth and prosperity the world has ever known.”

But then the other shoe drops when he addresses particular problems. He wants a world in which “we export more products and outsource fewer jobs.” But he never acknowledges that the only way in which we can export more is by allowing other nations to export their products to the United States, so that trade could work for the mutual advantage of both sides. His jingoistic attitude about outsourcing jobs leads him to overlook how low-cost imports can strengthen U.S. firms in the export market. He should have stressed reduced barriers and open trade, yet his one-sided mercantilist message was that free trade is good, but protectionism is even better.

The Perils of the Entitlement State

The same recurrent hostility toward business corrupts his understanding of the perils of the entitlement state. It takes only one quick look at the annual reports on Medicare to know that the program is not sustainable in its current form. The root of the difficulty lies in the basic way in which the program has been structured since its inception.

For the healthcare consumer, Medicare by design drives the marginal price of medical services as close to zero as is possible. The want of any kind of price constraint will always lead to a substantial overconsumption of healthcare services. The true road to success in healthcare is not to spend fortunes on treatments that yield low rates of return. It is to develop a set of institutions and practices that improve general health so that the need for these services can be reduced.

The only way to have a fair shot at that target is to find a way to cap overall Medicare payments. This column is not the place to debate Paul Ryan’s plan, which, after a ten-year transition plan (that may be too long), seeks to achieve that end. But the one sure path to failure is the president’s plan, whose lofty language promises only a continued expansion of an unsustainable program:

I will never turn Medicare into a voucher. No American should ever have to spend their golden years at the mercy of insurance companies. They should retire with the care and dignity they have earned. Yes, we will reform and strengthen Medicare for the long haul, but we’ll do it by reducing the cost of health care—not by asking seniors to pay thousands of dollars more. And we will keep the promise of Social Security by taking the responsible steps to strengthen it—not by turning it over to Wall Street.

His first sentence rules out any possibility of structural reform. His second sentence makes it clear that though he praises the free enterprise system in the abstract, he believes that it always lets us down in the real world by forcing senior citizens to live at the mercy of insurance companies and Wall Street.

The possibility that competitive markets could generate sensible options for healthcare both before and in retirement never crosses his mind. So, instead, he promises the next round of shallow and unspecified reforms that have been unable to bend the cost curve downward for nearly 50 years. Just for good measure, we get the additional populist fillip that Social Security will likewise remain a public fund, without any hint that he will trim entitlements by raising the minimum age for benefits to reflect the longer life expectancies.

So what we have in this speech is the clear conviction that the entitlements will not be subject to the systematic restructuring so desperately needed. He then compounds the problem by refusing to adopt the prescriptions for growth needed to fund these oversized entitlements. There are only two possible ways in which growth can be achieved. The first involves tax cuts and the second requires the simplification and deregulation of key markets, including labor and real estate.

But the president ruled those views out on the ground that they won’t help the small businesswoman and construction worker regain their footing in this economy. The thought that higher rates of investment in a friendlier economic climate might create additional job opportunities is waved away.

The Wrong Foundational Premises

It is not possible to have such a thin and immature understanding of how an economic system is put together by accident. That can only arise from the failure to adopt the right premises in the first place. It is worth recalling, yet again, that the president’s muse is Franklin Roosevelt, whose “bold, persistent, experimentation” sets the Obama gold standard. Alas, he reached that conclusion only by caricaturing his rivals in his acceptance speech:

We, the People, recognize that we have responsibilities as well as rights; that our destinies are bound together; that a freedom which only asks what’s in it for me, a freedom without a commitment to others, a freedom without love or charity or duty or patriotism, is unworthy of our founding ideals, and those who died in their defense.

Obama intends his reference to “We, the People,” to establish a nonexistent link between his policies and the wisdom of the Founding generation, which opposed the view of government that Obama champions. The issue is not whether we have responsibilities as well as rights. Of course we do, and one portion of those responsibilities is to contribute a fair share in taxation to support the common infrastructure.

But a second is to make sure that we do not take the system of taxation so far that it becomes the vehicle for giant transfer payments that destabilize and undermine the creation of wealth. The defense of freedom by believers in laissez-faire has never been to ask “what’s in it for me”—which can be easily asked by any of the numerous interest groups that lobby for federal handouts under the current rules of the game.

The vision of freedom that I want to defend gives individuals the maximum sphere of control to run their own lives. If left to their own devices, many people will continue to keep the commitments that they make by contracts to others; they will show love to the family and friends whom they admit into their lives; and they will exhibit both charitable and patriotic impulses for a country whom they have come to love because it has provided the framework of opportunity to all.

The great vice of Obama’s rhetoric is that he appropriates for his own use the ideals and ideas that have long served as symbols for the positions that he refutes. Yet even as he speaks, the sand continues to slip away underneath his feet. The job numbers that came out on Friday were disappointing. Forget the soaring rhetoric. Our president does not understand that his own policies are the source of our current malaise. 


Richard A. Epstein, Peter and Kirsten Bedford Senior Fellow at the Hoover Institution, Laurence A. Tisch Professor of Law at New York University, and senior lecturer at the University of Chicago, researches and writes on a broad range of constitutional, economic, historical, and philosophical subjects. He has taught administrative law, antitrust law, communications law, constitutional law, corporate law, criminal law, employment discrimination law, environmental law, food and drug law, health law, labor law, Roman law, real estate development and finance, and individual and corporate taxation. His publications cover an equally broad range of topics. His most recent book, published in 2013, is The Classical Liberal Constitution: The Uncertain Quest for Limited Government (2013). He is a past editor of the Journal of Legal Studies (1981–91) and the Journal of Law and Economics (1991–2001).


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