November 13, 2012

One Nation, Under Compromise?

Our political and financial realities will force both Democrats and Republicans to work toward smaller government.

My last Defining Ideas column on the Libertarian’s Dilemma started with the simple but critical observation that voting for any candidate is like buying a bundle of goods. To get the goods (or policy issues) you want, you have to accept the goods you don’t. So, the winning candidate may receive at most minority support for many of the most controversial items in their bundle of policies. We know that Obama won the 2012 election  because voters, by a margin of 81 to 18, think that he “cares for people like me.” But that warm and fuzzy feeling will soon give way to the issue-by-issue trench warfare on which the president is likely to prove far more vulnerable.

  epstein  
  Illustration by Barbara Kelley

Of Labor and Business

The power of this simple proposition is made apparent whenever particular issues are put on the ballot as separate initiatives, subject to an up or down vote. Two weeks ago, I wrote about the misguided Proposal 2 in Michigan, which sought to entrench—by constitutional amendment—collective bargaining in the state to the extent that it was not inconsistent with federal law. That initiative was beaten by a 58-42 margin in a state that President Obama carried comfortably and which also reelected the pro-labor Democratic Senator Debbie Stabenow.

Why the discrepancy? Because in voting for a president or senator, labor relations are only one issue among many. For most voters, the presidential election was dominated by a variety of social issues. But Proposal 2 came unbundled from those issues when it was put to an up or down vote. Once it became clear that it would upend many established Michigan laws and practices, the public quickly switched sides.

This unbundling effect also explains why corporate giving in the last presidential campaign did not affect its outcome. For good reasons, most corporations just don’t want to play in presidential elections. Corporations are complex entities, which are burdened with lots of internal conflicts, and which sell a bewildering array of goods and services in many different consumer markets.

In most instances, corporations will be cautious about supporting candidates, because, as national and multinational businesses, they have diverse financial and business interests. It is unlikely, therefore, that the views of any one candidate line up perfectly with the corporation’s. Hence, the political contribution that buys support on some issues necessarily subsidizes the opposition on other issues. Donating to campaigns exposes a corporation to political risk. It also exposes it to financial risk, if customers who are unhappy with the firm’s political choices decide to boycott it or to launch a public relations campaign against it. So why should the corporation waste its money on politics?

Except in extraordinary circumstances, the smart corporation lays low in general elections, and devotes its scarce resources to particular issues that come before Congress or the president. Individuals working through PACs or SuperPacs are less conflicted, and less hostage to public opinion. They can make large bets in political elections, most of which tend not to pay off. But even here, this market is one in which people of all views can enter, so that many contributions made to one party will be offset by those made to another.

Ironically, the incentives for political participation in general elections are more potent for the labor unions. Unlike corporations, unions do not have to worry about the loss of business that could result from their aggressive actions. Nor do they have to worry about taking a stand on a broad array of inconsistent issues that routinely face corporations contemplating political action. The set of issues before Congress and state legislatures that affect union outcomes is not confined to collective bargaining matters, or even employment relations more broadly conceived.

Unions hold strong positions on such key issues as pensions, land use control, international trade, and environmental protection. These issues are, moreover, sufficiently uniform to allow unions to form strong coalitions that can move on multiple fronts simultaneously.

The AFL-CIO is a lot more cohesive than the Chamber of Commerce, many of whose members can be at odds with each other on key issues. This is not the case with unions, who know their natural political allies. Unions contributed mightily to the Obama campaign, in both money and services, knowing full well that they could cash in their political chips down the road.

The point is ironic because the great outcry over Citizens United v. FEC, which knocked down limitations on political speech by corporations, turns out to be wholly misplaced. The rules apply evenhandedly to both corporations and unions, but the balance of advantage from the extended First Amendment protection goes to unions, who have a great deal more to lose from shutting down their political activities.

A Thorny Maze of Political Issues

The next issue that arises is the negotiations that will have to take place between Democrats and Republicans over a dizzying array of issues. The one immediate social issue on the agenda involves the contraception mandate in Obama’s Patient Protection and Affordable Care Act, which right now is subject to extensive litigation that could remove it from the political arena.

There is no question that this issue remains explosive, as the Democrats have been successfully able to characterize the question as a “war on women.” But even that position can be diffused if the Republicans are able to get across a simple message: the question posed by the contraception mandate is not whether women are entitled to obtain and use contraception, but whether employers, most notably the Roman Catholic Church and other religions, are under a legal duty to pay for it, all in violation of their religious beliefs.

The real political challenge with respect to health care is getting it off the ground. That task requires the creation of complex on-line exchanges, which are supposed to be set up by state governments in accordance with general federal mandates, most of which have yet to be articulated. Once this issue is teed up, the lurking unpopularity of the ACA will come back to the fore, where the question of whether or not to join its system is done on a state-by-state basis; only 15 states have signed up to date. In this political environment, Obama’s small majority in the electoral vote is relatively unimportant, especially in the 24 states that voted for Romney.

Still other provisions of Obamacare will come front and center in the Congress, including the question of whether to repeal the senseless excise tax on medical devices, with its potential to devastate what is, and should be, one of America’s strongest industries. Many of the people who voted for the president and the Democrats on social issues will turn against him on the implementation of this silly tax.

No Mandate on Health Care

The president and his party run the risk of real blowback if they treat their slight electoral victory as a political mandate for the health care program. It is impossible to think that the president will just abandon the centerpiece of his first administration. But in politics, discretion is often the better part of valor, which makes it likely that the two sides will negotiate a truce that calls, at the very least, for delayed implementation of the law.

The same kind of drama will play out in connection with Medicaid extension that calls for state-by-state elections on whether to participate in this program. The math says that individual states should find it hard to turn down the 90 percent subsidies dangled before their noses. But the hidden costs and the worrisome politics could make this a long and protracted struggle in many states.

Another area of potential compromise is over the “fiscal cliff” and what should be done on taxes and spending cuts to rein in the federal debt. The ever-more strident Paul Krugman offers the president this sage advice: Hang tough and don’t make a deal with the Republicans in light of an “amazing victory.” It is better, Krugman argues, to parlay the political spoils by risking an economic breakdown than capitulate to “intransigent” Republicans. It is hard to know what to make of his now frequent hysterical excesses.

On the merits, there are those of us who do believe that flatter taxes work better than Obama’s alternative, and that neither austerity nor stimulus will solve the problem unless and until key structural reforms are made in labor, health care, and real estate markets. These views are, moreover, mostly shared by many fiscally conservative and small-government voters who could not bring themselves to support the Republican in 2012, because they believed that Republicans would be all too willing to let big government meddle in the private lives of its citizens.

Democrats, too, may decouple themselves from their party in their concern over fiscal issues. Indeed, this swing bloc could easily register its unhappiness with both parties for taking hardline positions of the sort articulated by Krugman and others. It is therefore no surprise that cooler heads are likely to prevail as both Obama and House Speaker John Boehner have declared their intention to work for a budget bargain that will avoid the type of no-win standoff that occurred over the debt ceiling in the late summer of 2011.

A General Lesson

A week after the election, the parties have to get back to work to deal with a set of problems that were pushed to the side in the heat of the campaign. These issues will have to be resolved one at a time. One of the great tragedies of the Romney campaign is that it failed to spell out, with sufficient concreteness, the risks this nation faces going forward if it does not rein in the size of government.

Intellectually, his greatest omission in the debates was his failure to challenge the president on the administration’s stubborn line that tax reductions and deregulation can do nothing to improve the faltering economic position of this nation, with its feeble growth rate and declining standard of living.

I don’t believe that most people in this country would take so dismissive an attitude to these fundamental reforms. Now that each issue will be unbundled from the others, we can see whether the nation can come to its senses before four more years pass by and the President simply repeats the dismal domestic performance of his first term in office.


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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