The Libertarian Podcast: State Of The Re-Election Campaign | Richard Epstein | Hoover Institution

>> Tom Church: This is the libertarian podcast from the Hoover Institution. I'm your host, Tom Church, and I'm joined, as always, by the libertarian professor Richard Epstein. Richard is the Peter and Kirsten Bedford senior fellow here at the Hoover Institution. He's the Lawrence A Tisch professor of law at NYU and is a senior lecturer at the University of Chicago.

Now, Richard, it is that time of the year where many of us wish that the State of the union would be sent as a written report and not delivered as a 1 hour and twelve minute speech like it was last night. I think President Biden's theme was, look at how much things have improved since I took office.

I think at this point we can look over President Biden's record and see that inflation is falling, unemployment's under 3.5%. We popped a Chinese surveillance balloon, and yet his approval rating is only 44%. So how do you figure out that his approval rating is 44% and yet he's boasting about his record?

Would you expect to see a bump in his approval ratings after this speech?

>> Richard Epstein: Probably going in the opposite direction. I think it was a pretty weak speech. I mean, I think he did exactly the right thing, is that you have stuff which is positive. You have stuff which is negative.

You talk about the positives and you ignore the negatives. There are some issues in which you hope to be able to form a coalition, and there are others which will break it. So you emphasize the former rather than the latter. If I thought there was one thing that he was trying to do more than anything else, it was to try to win back the kinds of people that he grew up with in Scranton, Pennsylvania, and namely blue collar workers, many of union affiliations and so forth, by promising them a very large set of benefit packages and suppressing any discussion about the cost, except to say that it was going to be some kind of an unspecified tax on the risk.

We have taxed the rich to do so many things at this particular point that they will become poor. The irony I like to mention about that is if you look at the Biden stock market, something he doesn't want to talk about. It was a very bad year in 2022, and it's basically moving sideways in 2023.

One consequence of that is that the wealth of the richest Americans that you are constantly going to tax in one way or another has dropped by some $600 billion. Worldwide assets for the super rich have dropped by about $2 trillion. That is the billionaire class and so forth.

So it may well be what he's trying to do is to figure out how to get blood from the stone, because I don't think the resources to support his program are going to be there. And of course, it's not as though he believes that you should talk about incentives created by taxation, although the most notable feature is every single proposal that he wants to put forward will probably reduce the level of growth and innovation inside the United States, which will in turn reduce the wealth base.

That's going to happen. But as I said, this is a presidential speech, and what you do is you accentuate the positive and you ignore the negatives. Later on, we could figure out everything else that he ignored. But I think for the most part, he did what he wanted to do.

The speech was chappy, erratic. He said, let's finish the job. He sounds childish as far as I'm concerned, utterly incapable of any kind of sustained discussion on any sort of issue. The speech went ricocheting back and forth. He was quite happy to ad lib and so forth. I think the man has got complete certitude in what he believes, but I don't think that he could back it up with the performance that he's been able to show thus far.

>> Tom Church: Social Security and medicare were, well, it's a topic that people were talking about after last night's speech. President Biden called out Republicans for supposedly wanting to cut benefits for seniors. It's a reference to Senator Rick Scott's proposal to reauthorize legislation every five years. Basically, it would allow a, well, it would force a discussion, a vote could change the spending on Medicare and Social Security.

That proposal, however, was very quickly denied or dropped. Yes, from Senate Leader McConnell and Speaker McCarthy. They both flatly just said this isn't going to happen. And yet President Biden got, I think, a win last night, mentioning it, bringing it up and then getting a reaction from the Republicans, especially in the House side.

So tell me, are we actually going to see any substantive policy changes to the enormous part of the budget that is actually driving deficits going forward?

>> Richard Epstein: Look, I think it's extremely difficult to authorize these kinds of reforms because the system of both Medicare and Social Security embeds so many cross subsidies that the only way in which you could return to some kind of a market mechanism is to deny subsidies that seem to be regarded as vested rights.

George Bush, the sun tried to do that, and he was quickly swapped down. There was just no way that you can do it to give you a kind of a simple situation. How do you rationalize Medicare in terms of the premiums? Well, we know the structure is slightly crazy because what happens is it charges the same premiums for people with 65 and for people who are 80, when the medical risk in the 80 category is probably two or three, maybe even four times that for the 65.

Well, the only way that you can get rid of the tax on the 65 years old is to sort of have a huge boost on premiums of people who are 80 years old at that point. Most of them are retired. They don't have any earnings. They're gonna have no savings that are sufficient to cover this.

So it's gonna be a midstream calamity and nobody's gonna try to do it. You can try to do this in some way by seeing if you could bring some of the inefficiencies out of this particular system. And I'm sure that there are those things and how it is built and so forth.

But this is not the topic for a state of the union address. This is for getting a situation where you get a management consultant company, the McKinseys of the future or whatever, and try to look at the way in which the flows of cash and the acquisition situations, the budgets and so forth are run.

That's a very hard thing to do. My guess is there is an enormous amount of bloat in this system simply because of bad structuring and bad reporting. I did not say that there is an enormous amount of fraud in the system, although that is surely the case with at least some components of it, maybe more Medicaid than with Medicare.

But you don't know. But those things are long and patient inquiries and you don't have the attention span in Congress to do anything about it. Social Security is an easier fix if you want to do it. You could follow the inspiration of Mister Macron in France who says I gotta raise the age to 64.

A more sensible proposal than that is very difficult to find. And yet the street crowds are such that they're probably going to throw down the government if they try to push further with respect to these things.

>> Tom Church: The French do love to protest, don't they?

>> Richard Epstein: Yeah, they do.

But they're also very good at it, right? I mean, they're not so good at managing things, but they're very good at wrecking reform proposals and Social Security. When you try to increase the age, there's always a tendency to try to put it on into the out years so that people today don't.

But the moment you put it onto the out years instead of things today, it turns out that it gives you no form of financial relief. The Democrats are always willing to raise taxes in order to cover both of these things, and they've done it before and they'll try it again.

But after a while, you run into the kind of Laffer curve difficulties, that the loss in productivity is so sufficient from the taxes that are imposed that it turns out that you don't get additional revenues in order to run the program. So that you're gonna have to then start to flow bonds and so forth to cover it, which increases the interest rate.

There is no recognition whatsoever in anything that President Biden said that there's a cost attached to the agent to what it does. He sounds like Paul Krugman, who says deficits never matter because it's always an expanding economy, and we've already seen that. That was really called into question in 2022 when the inflation hit.

I think, in effect, it's down to 6% or something, maybe even 5%, but certain core elements of it are higher than that. So if you put these proposals back into place, I think you're going to start to see an increase in the inflation rate, which will be a huge difficulty when one's trying to look at all these kinds of things.

It's clear that the greatest pressure on the budget should be on the military side. The United States has continued to reduce the amount of money that is spent on it. But at the same time, the threats that we have from overseas in multiple theaters are very, very great.

I think one of the colossal blunders of the Biden administration is they seem to think that climate resiliency for the year 2050 is the number one issue. I think having security in the straits of Taiwan and dealing with Iran and with Russia and with North Korea is much more important than all of that stuff.

And I think we need more capital ships for the navy. We probably need an upgrade in the airplanes, and we need to have much larger recruitments. With respect to the army, one of the things that he did not discuss, but I think is really very troublesome is the sort of woke culture, which seems to have permeated military systems.

The service academies and so forth, has driven down the number of new recruits that we've gotten. And we have to change the way in which we treat people on the one hand and also have to probably increase the compensation on the other. The personnel rules with respect to military people are often cases very bizarre.

There's just a huge amount of reform to be done on this. And then, of course, I think what he never acknowledged is that his great Afghanistan policy was one of the great catastrophes of the 21st century. Pulling out in the way he did when he did and why he did it has left everybody a little bit uneasy about the United States.

It means that people are going to form alliances that are not going to depend upon us, but go around us. So pax americana, which in general was a very good thing, is a much weaker thing than it is today. And so what happened? He didn't talk about that.

He certainly didn't talk about the difficulties associated with the border. He didn't talk about the difficulties associated with his rather woebegone energy prices and so forth. So what we see in the President of the United States is a little bit of cherry picking, but there's no real sense that he's aware of the systematic dangers that he's facing.

And so if you ask why it is that the approval rate is low, people understand the positives that he pointed to, and nobody wants to deny them. But there are two things. One is he ignores too many issues, and two, he probably takes too much credit for the things that did get better.

The reduction in oil and gas prices is not attributable to anything Mister Biden did. Opening up the reserves is a futile, generous gesture. What he really needs to do is to encourage fracking and the foreign sale of gas and oil in order to undercut Mister Putin, who finances his wars of aggression by trying to sell his energy successfully throughout the world.

And so there's a kind of a refusal to deal with hard things. And also there's something else about it. The man looks brittle, he kinda looks testy. He looks as though he's at the limit of his intellectual capabilities when he says good morning. And so there's this constant undercurrent by both Democrats and Republicans alike, that he's not fit for public office today.

And that by the time you try to think about what he's going to look like in four, five, or six years from now, it would be a general catastrophe, I think, for him to be running again for president. So the dominant sentiment on both sides, which I fully support, is neither Trump nor Biden should be involved in American politics going future.

They should be aged out of this situation, not to be heard from again. And younger leaders in both parties want to take over. So we could return to a more principled debate on a set of issues which are gonna be deeply divisive. Because one thing that is quite clear on this date is that the progressive mindset which now dominates the Democratic Party.

Gone are the days of where you were Democrats, centrists, Clinton type centrist Democrats in the 1990s and so forth. There are gonna be increasing movements of aggressiveness up on one side, and there's gonna be a much more conservative move on both social issues and on economic issues on the other side.

The polarization is going to increase, which means that they're gonna be greater strains on every portion of the American system, including, of course, your next Supreme Court appointment.

>> Tom Church: Let's talk debt ceiling as well, because technically right now we are in emergency measures to be able to fund our promises, our notes.

Presumably we're going to figure something out. So what sort of agreement would you expect, noting that Social Security and Medicare changes are off the table?

>> Richard Epstein: Well, first of all, I think they have to be put back on the table, just as simple for technical reforms. But that can't happen in these negotiations.

I think what really has to happen is that Biden has to give up on the expansion of new entitlement program and basically agrees to try to keep things where they are in exchange for getting a relaxation of the debt ceiling. But his particular position turns out to be we get the waiver of the debt ceiling today and then we can talk about anything tomorrow.

But he's made no concrete suggestions. So the Republicans, I think, are in a kind of a very difficult position. They're surely right that the proposed spending increases are bad for the nation. But on the other hand, if they blow the debt ceiling, their repercussions could be sufficiently enormous and they will be regarded as the spoilers, not the Democrats, because they're the ones who refuse to go along.

And so I think what's gonna happen is the president, like in previous times, is going to win this particular debate, but I think it's going to come at a political cost because everybody understands he's not serious about having a second round of negotiation. Everything he said, I can't think of a single phrase in that speech which talked about a budget cut or the reduction of an entitlement.

Everything was about new and greater entitlement, further limitations on things, really jingoistic legislation, have everything on public projects built and bought in America. I mean, what's this gonna tell our allies with whom we're trying to secure cooperation on NATO and a lot of other kinds of issues is they're saying, well, stuff it.

We don't care about you. And what you do when you say you're not gonna import is you reduce your ability to export for two reasons. One, your products are gonna be more expensive than they would have been if you had taken good foreign components and put them into it.

And two, people are gonna start to have retaliation policies against you, which is gonna make it harder to sell overseas. So the man is essentially a protectionist. I think this is the most dangerous policies that you could part to imagine. And yet there's no sign that he's going to do this.

Republicans have often done exactly the same thing. Trump made a career out of this, and it's very appealing. Our plan to make widgets went to Mexico or to Portugal or to anywhere else on the globe. If only we had kept them here, everything would have been better. Well, you could prohibit the exports, but what's gonna happen is the firm will go bankrupt because it can't compete in the current market, or it will leave one of the Rust Belt states and go to one of the southern states as everything has started to take place.

So the thought that somehow or other, you can prop up an inefficient situation indefinitely is always just a delusion of the highest order. What you have to remember is that if you prevent people from taking low cost options by doing international trade, you're going to have to pay collateral courses, which you'll see.

The union jobs will still disappear. They continue to disappear, both in the private sector and in the public sector, notwithstanding the fact that the president has done everything within his power to make them much more successful. What he's done is he's increased the cost of litigation. He's increased the number of union elections in places where they probably ought never to take place.

But you cannot reverse the fundamental change, and he doesn't seem to understand that. I think it's pretty fair to say about Joe Biden is that the extent of his understanding of the kinda crib sheets that he has with what's going on here, if you try to engage him outside of this particular political arena in a serious discussion, he would have nothing to say.

He's an extremely weak president, which means that the people around him who are smarter and in many cases more dangerous are going to be calling the shots, both domestically and internationally. There's no sign whatsoever of a fundamental change in the system, which means, as I think things are likely to get better, worse before they get better, that the approval rating, which is now 44%, will go down.

And I think, in fact, the Democrats will gently try to pry them out of that office. The great risk is they will put somebody in who's further to the left, when in fact, they probably have to get somebody who is gonna tack a little bit more to the center.

Biden was right on one thing. He avoided all the hot button issues associated with woke politics, with racial preferences of one kind or another. He even tamped down on things like abortion, the economic issues. But in general, he failed to say much that was constructive about the way in which they ought to be treated.

>> Tom Church: Last one for you, Richard, and this one I'd like to be short. Just before the state of the union, and I think it will be short. Michelle Goldberg at the New York Times wrote a column titled Biden's a great president. He should not run again. Many people are treating his speech last night as an unofficial kickoff to his reelection campaign.

So, Richard, are you looking forward to Biden 2024?

>> Richard Epstein: I don't think he will run. I think she's a pretty influential writer. I disagree with the first half of the statement. He's not a great president. And the reason I think it's troublesome for her to say that is that she would want somebody like Gavin Newsom, who's in that mold in order to replace him.

I think he's a poor president. I think he ought not to run, both because of his general incompetence and also his age. Everybody will agree on the age, and I think, in effect, the Republicans will. The Democrats will, in effect, start to move in that particular direction because, as the president himself acknowledged, he's gaff prone.

And as you get closer to the new year, those gaffes will become more expensive. So my guess is that he will not be able to run. I don't think there's anything about his State of Union performance which would persuade doubtful Democrats that he should be given another four years in 2024.

>> Tom Church: You've been listening to the Libertarian podcast with Richard Epstein. If you'd like to learn more, make sure to read Richard's column, The Libertarian, published on Defining Ideas at hoover.org. A quick logistic note for our listeners. We're gonna take a few weeks off. They'll be back in March.

In the meantime, please share this show with your friends and rate it on Apple Podcasts or wherever you're tuning in. For Richard Epstein, I'm Tom Church. We'll talk to you in March.

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