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A Failure of Capitalism: Harvard University Press Richard Posner tells us that capitalism has failed, but his own book leads to an entirely different conclusion.
This movement views law as a way to maximize economic efficiency. Because of his activities in this movement, as well as his status as a leading light of Chicago School economicsPosner acquired a reputation as a defender of the free market. Is it not big news, then, when a champion of capitalism must admit that something is wrong with capitalism?
Posner never was an unalloyed supporter of the free market, and his book does not show that capitalism has failed. True enough, Posner sometimes has opposed excessive government regulation, but he has never defended the free market consistently.
In his Not a Suicide Pactfor example, he urges that even the slight possibility that we may be subject to terrorist attacks justifies massive intrusions on civil liberties.
More important than mistaken ideas about Posner, though, are mistaken ideas about capitalism, as these can lead to serious policy blunders. Posner says that capitalism has failed: Some conservatives believe that the depression is the result of unwise government policies. I believe it is a market failure.
But without any government regulation of the financial industry the economy would still, in all likelihood, be in a depression; what we have learned from the depression has shown that we need a more active and intelligent government to keep a capitalist economy from running off the rails.
The crisis began, as everyone knows, as a collapse in the housing market. Investment in real estate, through complicated derivatives and other schemes, spread through the entire economy, so that problems in housing could not be contained.
The result was a general crisis. Posner rightly draws an analogy with the American economy in the s: A stock market bubble developed in the s, powered by plausible optimism the years to were ones of unprecedented economic growth and enabled by the willingness of banks to lend on very generous terms to people who wanted to play the stock market.
The bubble started in housing but eventually engulfed the financial sector, becoming a credit bubble. How then should we explain this crisis? Is it not obvious that we should look for a theory that takes depression to be the outcome of an investment bubble? Posner ignores so evident a point, surprisingly for someone often viewed by his acolytes as a veritable genius.
He says, first, that we lack a good theoretical account of the origins of depressions: There is another account on offer, of which Posner shows himself fitfully aware but never discusses in detail.
Instead, he concentrates almost entirely on the Keynesian and monetarist accounts, deemed by their own advocates to be theoretically unsatisfactory: The two basic remedial approaches correspond to two theories of the cause of the great depression: He calls this theory by name, the Austrian theoryonly once in the entire book.
The essentials of the theory are readily explained. People decide how much to spend on current consumption, and how much to invest, according to their rate of time preference, that is, their preference for present over future goods.
The rate of time preference, according to Ludwig von Mises, is the principal component of the rate of interest. As Mises and F. If the interest rate thus falls, investors will be induced to expand. Money is available; why should they refuse? Additionally, a boom in consumption goods may also occur.
When the credit expansion ceases, as it eventually must, these investments prove incapable of being sustained. They must be liquidated, and the process of doing so is precisely the depression. This account raises a new question: How are the banks able to expand the supply of money?
The answer lies in a combination of fractional reserve banking, the ability of banks to issue money in excess of reserves deposited, with the coordination of all banks through the Federal Reserve System. This permits a bank to issue money without fear that customers of other banks, demanding redemption in a quantity too great for it to meet, will force it into insolvency.
The bank knows that the system will bail it out in case of an emergency of this kind. The Federal Reserve System is hardly the product of the free market ; how then can an investment boom and ensuing depression that its monetary policy makes possible be blamed on capitalism?
In a free market, as Mises and Murray Rothbard have argued, money would be a commodity, probably gold, and government manipulation of the money supply could not occur.Richard A.
Posner is a judge of the U.S. Court Appeals for the Seventh Circuit, and a senior lecturer at the University of Chicago Law School. May 05, · Scott Morrison has confirmed that low to middle-income workers on less than $87, a year will be targeted for immediate “maximum” tax relief this year.
Richard Posner is a Suicide Pact. by David Gordon. September 10, Under Discussion:A Failure of Capitalism: The Crisis of ‘08 and the Descent into Depression. Richard A. Posner.
Harvard University Press (). pages.
Posner's application to terrorism In , Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit and professor at the University of Chicago Law School, wrote a book called Not a Suicide Pact: The Constitution in a Time of National Emergency.
Sep 10, · Richard Posner Credit Guity Nashat. Take the power to torture a suspect or to suspend the right to challenge a detention through a habeas corpus petition.
Posner thinks these powers are sometimes necessary, and chides civil libertarians for asserting otherwise. Richard Posner is Senior Lecturer in Law at the University of Chicago Law School. Following his graduation from Harvard Law School, Judge Posner clerked for Justice William J.
Brennan Jr. From to , he was assistant to Commissioner Philip Elman of the Federal Trade Commission/5.