** PUBLIC POST **

The Libertarian
A Toxic Mix Of Regulation And Subsidy
Richard A. Epstein, 11.25.08, 12:01 AM EST
Brace yourselves for the Obama economy.

In his Democratic Party radio address this past Saturday, President-elect Barack Obama announced a vast stimulus plan that, alas, contradicts every sound principle of economic planning.

Granted, the U.S. and the world are in the throes of a deepening economic crisis; granted, too, some drastic action needs to be taken to reverse that inexorable downward cycle: It's still necessary to ask which levers to pull and why. Unfortunately, the collectivist mindset of the fledgling Obama administration pulls the wrong levers for the wrong reason.

The Libertarian
A Toxic Mix Of Regulation And Subsidy
Richard A. Epstein, 11.25.08, 12:01 AM EST
Brace yourselves for the Obama economy.
pic

In his Democratic Party radio address this past Saturday, President-elect Barack Obama announced a vast stimulus plan that, alas, contradicts every sound principle of economic planning.

Granted, the U.S. and the world are in the throes of a deepening economic crisis; granted, too, some drastic action needs to be taken to reverse that inexorable downward cycle: It's still necessary to ask which levers to pull and why. Unfortunately, the collectivist mindset of the fledgling Obama administration pulls the wrong levers for the wrong reason.

It's risky to have friends or to pick winners. We already have strong evidence from the shambles of the energy-savvy ethanol program that one grand subsidy wrecked both energy and agriculture with a single mighty blow. So cut the fancy foot work and adopt a better, slimmed-down energy policy. Just set the correct level of tax on any pollution or emission, and then stand aside, and let firms maximize profits within that constraint.

But that is not likely to happen. The first stimulus package proved useless because it distributed (and badly at that) cash without reducing the long term marginal rates of taxation. The present $700 billion bailout has degenerated into a free for all without discernible purpose, as special pleaders line up, hat in hand, at the Treasury door.

The new Obama administration will intensify the mad scramble by insisting, at the behest of its favored clientele, that various "conditions" be attached to infrastructure grants to assure justice to unions, minority groups, displaced persons or disabled individuals. Contracting projects for cost-effectiveness is too simple to attract the interest of his high-IQ management team.

The only good news is that Obama is thinking of postponing his tax hikes on the most productive members of society. He must surely know their ranks have thinned in the wave of pink slips enveloping Wall Street. But danger still lurks. The Obama stimulus program calls for a toxic mix of regulation and subsidy. The anguished libertarian calls for neither.