Tuesday, November 2, 2010

Obama and the fiscal crisis

I just watched an interesting interview with Richard Epstein, presented as part of Peter Robinson's fine Uncommon Knowledge series. Epstein is an expert in a host of legal areas including constitutional law. He taught at the University of Chicago where he had occasion to interact with future President Obama both personally and professionally. Below are some quotes from the interview, given shortly after Obama took office, that I found both interesting and, in some cases, prescient.

On the Supreme Court:
[E]verybody's intuitive sense of justice and intuitive sense of what The Constitution means is essentially at odds with the way in which The Constitution has been interpreted.
On Obama's politics:
[H]e's a man on the left who will, if necessary, throw bones to the center; this is not a man from the center.
On Obama's world view (pieced together from different responses):
And the fundamental mistake of his entire world view is that he treats contracts as devices for exploitation. He doesn't treat them as devices for mutual gain, and he assumes that redistribution can take place without any negative impact upon production. And if you live in that kind of a fairy land. . . everyone of your major social and economic initiatives are gonna miss-fire. And if they succeed. . . they're gonna create an intensification of the downturn that we've already experienced. So, wrong guy for the job in terms of his intellectual format.
. . .
And so what this guy is about to do, in my opinion, is to engage in a series of proposals that will redistribute wealth that we do not have. . . [T]these are all wealth killers.
On the real problem behind the fiscal crisis:
There's no liquidity problem. We have huge amounts of cash just sitting on the sideline right now and, you know, in the hands of large investment bankers with tremendous sophistication. They don't want to lend. Why not? Because they don't believe that the money they lend today is gonna be collected tomorrow under the mortgages that they issue. . . They don't think that the deal they get today is the deal they're gonna have tomorrow. After all, if you're welch on AIG you could welch on anybody, and that's what they're really afraid of. So, what's happened in this market. There is now a complete lack of confidence that long-term transactions will be consistently construed over their entire lives. And that's worse than a liquidity crisis 'cause even if you got the money nobody wants to do anything but put it into treasury bills.

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