Epstein on Obamanomics

Richard A. Epstein is a public intellectual whose comments on politics are typically incisive and enlightening.  In this column he takes on Obama's comments on the economy and his solutions to its problems, making the point that Obama has no even rudimentary knowledge of economics and how the economy works in real time.  For anyone who has worked in the private sector and understands supply and demand and other forces that direct and control free markets, all this is painfully obvious.  Here's Epstein on this point:

Farewell to Supply and Demand

The President’s speech at Knox College needs some close deconstruction because it sheds harsh light on a problem that has dogged his domestic policy agenda from the beginning: intellectual rigidity. The President, who has never worked a day in the private sector, has no systematic view of the way in which businesses operate or economies grow. He never starts a discussion by asking how the basic laws of supply and demand operate, and shows no faith that markets are the best mechanism for bringing these two forces into equilibrium.

Because he does not understand rudimentary economics, he relies on anecdotes to make his argument. He notes, for example, that the Maytag plant that used to be in Galesburg is no longer in operation—it closed in 2004—but he never asks what set of forces made it untenable for the business to continue to operate there. He never mentions that Maytag’s relocation of its manufacturing operations to Mexico may have had something to do with a strong union presence or the dreadful economic climate in Illinois.

Unfortunately, our President rules out deregulation or lower taxes as a way to unleash productive forces in the country. Indeed, he is unable to grasp the simple point that the only engine of economic prosperity is an active market in which all parties benefit from voluntary exchange. Both taxes and regulation disrupt those exchanges, causing fewer exchanges to take place—and those which do occur have generated smaller gains than they should. The two-fold attraction of markets is that they foster better incentives for production as they lower administrative costs. Their comparative flexibility means that they have a capacity for self-correction that is lacking in a top-down regulatory framework that limits wages, prices, and the other conditions of voluntary exchange.

Epstein's entire article is here.

This the comment of a Powerline reader who has lived in the suburbs of Detroit for a lifetime;

 A reader with first-hand experience recounts Young’s role in Detroit’s downfall:

I listened to some of your appearance the other day on the Bill Bennett show on my way to work. I would have loved to call and offer my two-cents worth on the situation in Detroit, but can’t afford the time to sit on hold for an extended period. Maybe when I retire in a year or two.

A little biographical detail to set the stage: I am not a native Detroiter. I grew up in the Upper Peninsula, went to undergraduate school in Ann Arbor from 1970-74, spent a few years in California sowing wild oats (no seed grew, thank goodness) and moved back to Michigan and into the Detroit area in 1978. It has been home ever since. As a youngster, I viewed Detroit from afar, as a college student I watched TV and listened to radio daily from Detroit while seldom actually going into the city, and as a resident I have lived in several of the suburbs but never in the city. I have watched the slow motion train wreck over several decades.

Listening to the discussion on the Bennett show, it was pretty clear that everyone gets it that the unions were probably the single biggest economic factor in the decline of the city. However, there was elephant in the room that no one seemed to want to talk much about and that is the role of race in the culture and politics of the current situation. I would submit that it was also a huge factor in the decline of Detroit and will, sadly, probably be the factor that will derail any rebound. The politics of race in Detroit are poisonous and I lay that at the feet of Coleman Young.

Young was far left, a fellow traveler of the CPUSA through membership in affiliated organizations and was deeply involved with the UAW. He was Mayor of Detroit for 20 years, from 1974 to 1994. I believe he made a cynical decision to make Detroit a majority black city, largely for his own political benefit. Whites had left the city in large numbers following the riots in ’67, but Young, I believe, was happy to see them go and subtly let them know they weren’t really wanted there anymore. The higher the black to white ratio in the city, the tighter was his grip on power.

In his years in power there were two techniques he used to cement his power and influence. One was to pack the city payroll with supporters, a tried and true tactic of municipal governments everywhere. However, his deep ties to the union movement opened the door for a huge amount of influence in compensation negotiations resulting in the high wages and generous benefits, including pensions, which are plaguing the city now.

The second technique he used was to keep race relations at a boil. When I moved here in 1978 the Detroit metro area was almost unbelievably segregated. Most suburbs, with a few notable exceptions, had only tiny black populations. Almost all the blacks in the metro area lived in the city and almost all the whites in the suburbs. My first drive up Jefferson Ave from the center of the city into the Grosse Pointes was eye opening. Within 3-4 blocks it changed from a filthy street with abandoned buildings and rundown store fronts covered with graffiti and protective steel gratings to a tree lined avenue with large well maintained homes with immaculate landscaping. There was a virtual Maginot line at the border of Detroit.

Young was a master of exploiting this divide and creating friction with the “suburbs” (dogwhistle for “whites”) and regularly used this to foster a “them (white) vs us (black)” mentality in his voter base. He was always the guy standing up to “the suburbs” and they loved him for it. He was mayor for life. Sadly, this technique was extremely effective, to the point where it not only worked on blacks in Detroit, it also worked on the whites in the suburbs. To this day, almost twenty years after Young left office, the animosity is such that any cooperative endeavors between Detroit and its surrounding communities are always fraught with a significant dose of racial politics. Blacks always think that whites want to take over and whites don’t see any benefit in doing anything that helps the city.

While the racial segregation of the Detroit metro area has eased over the years, this has actually worked to the detriment of the city. Over the past several decades crime has gone up and services have declined, making the city a much less desirable place to live, as population figures confirm. The vast majority of that population loss, I believe, has been the black middle classes who left the city for the suburbs. It is perfectly understandable that they want to move their families to where the streets are safer and services are better, most notably the school districts. The result is that the city is now largely populated by an underclass that is very poorly educated and pretty much only capable of working at the lowest rungs of the economic ladder. Functional illiteracy has been estimated at nearly 50% and over a third of the population is on welfare. It is a tragedy and it will be a primary factor in keeping the city from any meaningful rebound, at least in the next couple of decades. The human capital is just not there to rebuild an economic infrastructure capable of lifting the city out of its financial difficulties. (Digression: if current lawsuits filed by pensioners to protect their interests are successful a huge proportion of meager city operating finances will be untouchable and other city services will suffer enormously in the future, digging an even deeper hole for the city.)

However, the legacy of Coleman Young will be another major and perhaps even more deleterious contributing factor. The animus still runs deep between the city and any outsiders. In the current situation, the emergency manager (although black) is seen as an agent of the State government which is currently in the hands of the Republican Party (and therefore white). Understanding the Coleman Young school of politics one would expect that the voters in Detroit would react negatively to “white people” trying to take over and disempower them and this is exactly what is happening. There is very little cooperation from the city with what is going on. Dave Bing, the current mayor, has been vilified for not being sufficiently confrontational and those city officials fighting the State and the Emergency Manager every step of the way have lots of support from the populace.

One illustrative example: Belle Isle is a city park on an island in the Detroit River. Years ago it was in fact a jewel of the city. Now it is dilapidated, overgrown and generally very disreputable looking. The State offered to take over the operation of the park on a long term lease basis. The State would rehab the property and foot the bill for staffing the park. The hue and cry from the city was immediate and overwhelmingly negative and the idea was swept into the dustbin rather quickly. This proposal was such an obvious win for the city, reducing city expenditures, improving infrastructure and quality of life for Detroit residents, and it was attacked vociferously based strictly on racial politics. Sadly it played out pretty much exactly as I expected when I first heard about the proposal. Thank you, Coleman Young.

So, to make a long story short, I am afraid that I have to agree with your assessment that it will probably be more difficult for the city of Detroit to rebound than the country of Greece. At least two huge hurdles need to be surmounted and I am skeptical about either.

Our reader’s reference to Belle Isle reminded me that I recently posted a photo of that park taken in 1908, along with a number of other century-old photographs. If you missed that post, you should check it out. Belle Isle Park, 1908:

Detroit was a better place in 1908, but to be fair, it is not the only city of which that could be said.