« Depressions Cause a lot More Pain than Benefits-Becker | Main | Bail Out the Detroit Auto Manufacturers? Posner's Comment »

11/09/2008

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c031153ef0133efd33c32970b

Listed below are links to weblogs that reference Do Depressions Have a Silver Lining? Posner:

» Mom Blogs - Blogs for Moms from
TITLE: Mom Blogs - Blogs for Moms URL: http://momblogs.info IP: 69.61.11.226 BLOG NAME: DATE: 02/15/2009 05:53:34 PM [Read More]

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

Archimedes

Like all economists (or the ones I've read), Posner posits that old metaphor for "the economy" (machine, engine) and then describes conditions within the metaphor (overheating), and suggests solutions (cooling, and other blah blahs) as if all the diagnosis and prescription added up to something beyond and more practical than poetry, or rather, interpretation of poetry, his own.

Economics Allergy

Archimedes,
Since you're being so critical (something I'd admire if you used your real name), why don't you also point out that Posner is also employing that silly "cycle" notion. Economists (pseudo-scientists, adherenets of "math for math's sake") seem to believe that in putting together their circle drawing from some historical data patterns they have, in the form of "business cycle", discovered something as profoundly insightful as Watson and Crick's DNA structure. They have discovered what they themselves planted.

Economics Allergy

Archimedes,
Since you're being so critical (something I'd admire if you used your real name), why don't you also point out that Posner is also employing that silly "cycle" notion. Economists (pseudo-scientists, adherenets of "math for math's sake") seem to believe that in putting together their circle drawing from some historical data patterns they have, in the form of "business cycle", discovered something as profoundly insightful as Watson and Crick's DNA structure. They have discovered what they themselves planted. It's about time the "republic of letters" was weeded. But I don't garden for free, so I'll stop here, having already pointed the way. Sat sapienti.

The Drunken Priest

So if we accept that the optimal amount of government intervention is not zero, then what? In a leap of idiocy, the honorable judge concludes the optimal level is somewhere between the Truman presidency and the Johnson years. What a joke.

Daniel

Did "Economics Allergy" really just criticize someone for not using their real name?

Peter Pearson

Just a minor quibble that I hope some will find illuminating: the widespread belief that the top marginal federal income tax rate is 35 percent is too low by at least half. I know this because I instructed my tax preparer to temporarily increase various income categories by $100, and thereby discovered that my consulting income is taxed at 54 percent, while my wife's W-2 income is taxed at 47 percent.

From what I've seen, all public discussion of tax policy is conducted by people who are grossly (though understandably, given the complexity of the computations) misinformed about this very basic number, the top marginal tax rate. That can't be a good sign.

Scott

Just a small change to your article if you don't mind -

"A depression is an essential backup to efforts to moderate the business cycle. The housing bubble could not expand indefinitely; leverage could not keep growing indefinitely. The government was doing nothing to prick the bubble or to limit leverage. The longer the world economy went without a depression, the worse the collapse would be when it finally, inevitably, came. The saving grace of catastrophes is averting worse catastrophes: imagine if ............. Lincoln had not instituted the homestead act but instead had socialized all Land and charged leases to everyone based on the market value of the Land and then returned 100% of the proceeds to every individual equally in the form of a yearly Land Dividend Payment. The check everyone received would be equal to the lease payment on the average piece of Land. Life is the Foundation of every everlasting social structure and Land is a Inherent Birthright. Build upon the right foundation and our social structure will always stand. Live and Learn.

Scott

Scott

Just a small change to your article if you don't mind -

"A depression is an essential backup to efforts to moderate the business cycle. The housing bubble could not expand indefinitely; leverage could not keep growing indefinitely. The government was doing nothing to prick the bubble or to limit leverage. The longer the world economy went without a depression, the worse the collapse would be when it finally, inevitably, came. The saving grace of catastrophes is averting worse catastrophes: imagine if ............. Lincoln had not instituted the homestead act but instead had socialized all Land and charged leases to everyone based on the market value of the Land and then returned 100% of the proceeds to every individual equally in the form of a yearly Land Dividend Payment. The check everyone received would be equal to the lease payment on the average piece of Land. Life is the Foundation of every everlasting social structure and Land is a Inherent Birthright. Build upon the right foundation and our social structure will always stand. Live and Learn.

Scott

Chase Mechanick

Unemployment lowers the opportunity cost for education? It's rather ridiculous to suggest that people will have an incentive to enroll in school because they don't have a job and therefore don't have anything better to do with their time, which is essentially what this argument amounts to. If anything, financial insecurity discourages education. A parent who is laid off will be less able to afford college for his or her kid (or him/herself, for that matter). In fact, they might not even be willing to make that long-term investment in the first place, and will instead prefer that the son or daughter spend their time looking for a job to help the family in their time of financial distress.

James Hill

Excellent content - as you always provide and inspires me to come again and again. You are on my RSS reader now so I can read more from you down the road.

By the way, there is one more valuable resource I’d like to share with others readers. It’s called GetMoreBuyers.com.

Trust me, it worked for me and I am sure IT WILL work for you.

Want a list that makes you one of the most sought after JV partners in the world?

Learn 10 simple techniques this super affiliate used to create a six-figure list that buys like their lives depend on it!

http://www.clickaudit.com/goto/?137867

Scott Allan

The simple comparison of 94%, 70%, and 35% tax brackets perpetuates misunderstanding. The lowering of brackets were accompanied by a corresponding elimination of deductions and so called 'loopholes'. In many cases, individual taxes in top brackets changed insignificantly. Only the calculation method changed. It did, however, remove a great deal of the 'tax effect' calculation in investment decisions.

Brian Davis

If current circumstances deteriorate into a global Depression, I'm confident someone will start a war to settle accounts and wipe slates clean. This planet's recorded history is benchmarked by wars.

Jeremy Goodridge

Dr. Posner:

You make one very misleading comment:

"Federal taxes as a percentage of Gross Domestic Product are no higher today than they were in the 1940s, 1950s, and 1960s—periods of healthy economic growth."

It's not central to your basic argument, but it is very important that these facts are right.

The problem with this statement is that it suggest that the fiscal size of government is relatively flat. But that's simply not true.

There are 3 important issues that you miss:

1. You are looking at tax receipts, not outlays. Outlays matter more becuase ALL government spending crowds out private spending -- whether borrowed or taxed.

2. You are missing state/local spending, which has increased especially in recent years.

3. You are looking at %gdp. Although this is a common way to look at government spending, it's biased toward more government spending. Why should spending automatically increase as people get richer? A much better measure would be government spending per capita, which just accounts for population-growth related increases in gdp, but not productivity/capita increases.

Check out the following article for facts:

http://en.wikipedia.org/wiki/Government_spending

It shows increasing spending since the 20's, using the flawed %gdp measure. %gdp started to stabalize during the 80's. But increased steadily up until the 80's.
And from the statistical abstract:

% GNP/GDP for federal spending
1940: 10%
1945: 43.6%
1950: 16%
1955: 16.2%
1960: 17.7%
1965: 18.2%
1970: 19.3%
1975: 21.8%
1980: 21.7%
1985: 22.9%
1990: 21.8%
1995: 20.7%
2000: 18.4%
2005: 20.2%

The only drop came in the 90's when military spending dropped. Now it has come back up. And has most certainly gone above 21% again.

But since 1940, we are about spending double the amount AS A PERCENT of gdp. So, that's many times more when looked at from a per-capita standpoint.

Jeremy

Daniel

Chase,

I agree that a decision to enter college as an undergraduate is not heavily influenced by the depression/recession. However, I think that Judge Posner is right with regards to graduate and Professional school. The opportunity of cost for someone considering returning to school to get an MBA or a law degree is reduced in a period of economic uncertainty. Returning to school allows access to student loans and the potential for higher income in two to three years when the economy turns around, and forgone income in the interim is less of a concern if you have already lost your job or are likely to in the near future.

neilehat

Recessions or Depressions? The only difference lies in the "Fear Factor" which aggravates the problem and creates the conditions for becoming self fullfilling prophecy. Perhaps, that's why no one is willing to say the "D" word, but then, if we don't, we certainly won't take the necessary actions to solve the problems with all the "market" failures. Kudos!

As for the "Orthodox Economics" that have led us to this point, clearly it is functioning as an archaism and hindrance to viable action dealing with the current problem. Even the E.U. and G8 have recognized this and are clamoring for change.

As from the "Heterodox Economics", specifically, Thermoeconomics, There is the principle of Entropy at work in all systems, i.e. "things run down". Sound familiar? So the solution is to find the magic elixer of anti-entropy. Which is and always will be the creativity of the human mind and the courage to take the necessary actions. By inserting additional "energy" into the system.

nathan

on "slack" in the economy:

it is not clear to me that recessions or depressions remove slack. people that have inherited lots, or have jobs due to nepotism, may not be phased as much as people who do not inherit money or jobs. furthermore, I do not see how one can possibly do what the boss says 24 hours a day at certain financials and possibly atone for gaffes of sr management.

Robert

Great article, as always, but Judge Posner fails to mention the role that moral hazard plays when government engages in industrywide bailouts. You say, in effect, that things could be worse even with a depression. However, don't depressions come about, in part, because bailouts protect institutions from the full consequences of their actions (and, by extension, create or exacerbate circumstances that would otherwise be manageable?) Why do we need the "silver lining" of a depression when it could have been staved off in the first place by non-interventionist policies?

Robert

Great article, as always, but Judge Posner fails to mention the role that moral hazard plays when government engages in industrywide bailouts. You say, in effect, that things could be worse even with a depression. However, don't depressions come about, in part, because bailouts protect institutions from the full consequences of their actions (and, by extension, create or exacerbate circumstances that would otherwise be manageable?) Why do we need the "silver lining" of a depression when it could have been staved off in the first place by non-interventionist policies?

renminbi

Do you really have to take global warming seriously? The scince isn't there yet.

Betty

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to

say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Betty

http://www.my-foreclosures.info

Robert Lofts

The silver lining of depression looks a lot more sterling for someone with a lifetime job and a government guaranteed pension than it does for a 73 year old retiree who has foregone a lot of current income to fund a retirement program that has been dramatically reduced by the depression and is now threatened with nationalization by politicians. I suggest spending a couple of days discussing the silver lining with WalMart customers to get a better perspective.

Robert Lofts

The silver lining of depression looks a lot more sterling for someone with a lifetime job and a government guaranteed pension than it does for a 73 year old retiree who has foregone a lot of current income to fund a retirement program that has been dramatically reduced by the depression and is now threatened with nationalization by politicians. I suggest spending a couple of days discussing the silver lining with WalMart customers to get a better perspective.

R. Tanksley

Posner's article is quite decent but it fails to look at the social ramifications of a depression. In the 1930s the depression had an upside in that people pulled together, many turned economic distress into greater family and community involvement. Excesses were wiped out and many returned to what really mattered in their lives. The oncoming (highly likely) depression may not have the same affects. People feel too entitled and the government too willing to assist. History however will judge the reaction of people towards each other in this new crisis.

Jim

Wow! What nonsense from Judge Posner! First he dismisses Hitler as a sidebar to the depression as if Hitler and the 50 or 60 million people who were killed in WWII mostly because of Hitler was a minor secondary effect to an otherwise routine business cycle. That was as far as I got in that post. Now we have the far left poised to belly flop onto Obama and our current "depression". Please visit the site below for some of their ideas. My advice is a nice Cayman or Swiss account and soon.

http://www.carolinajournal.com/articles/display_story.html?id=5081

Why is our current depression dangerous? The government is bankrupt, we import almost everything including food and 70% of our oil, our total tax burden is approaching 50% and now there are some, as related in the website above, who would confiscate the 401(k)s and IRAs to pay for the politically and financially corrupt policies of a professional political class which has been squandering our wealth since WWII.

I smell the potential for civil war, dictatorship and who knows what death toll.

Yes sir, Judge Posner, depressions are good.

Dan

"Confiscating" 401(k) plans to fund SSA would be the unconstitutional taking to end all takings. It will never happen. Ain't no way no how.

But undoing the trickle-down B.S. behind the Reagan era tax bracket reforms? That seems a certainty, at least to some extent.

Unfortunately for conservatives, the recent and ongoing redistribution of wealth/socialization of losses to bail out banks pulls the rug out from under anti-socialism arguments when it comes to the tax structure to provide relief to the middle class.

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Become a Fan

May 2014

Sun Mon Tue Wed Thu Fri Sat
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31