The Becker-Posner Blog

Is China’s Economic Future a Rosy One? Becker

Starting with the opening of agriculture to private incentives in the late 1970s, China has experienced faster and more prolonged economic growth than any other country. In a mere three decades China has moved from a very poor nation to a middle-income level country, a development that pulled hundreds of millions of Chinese out of poverty. China’s aggregate GDP is now second in the world only to that of the US. While its per capita income is still much smaller than that of America’s, many are predicting that even China’s per capita GDP will surpass that of the US in a few decades.

Perhaps, but let us not yet get carried away too quickly. Two other predictions in recent decades of countries beating the US are a reminder that projections of continued trends in income growth can be way off the mark. In 1956, Khrushchev proclaimed that the Soviet Union would bury the US, not militarily but economically. One might at the time have dismissed this as the exaggerations of a loud and belligerent leader, but similar predictions were common among mainstream economists. Various editions of Paul Samuelson’s best selling textbook Economics: An Introductory Analysis predicted that by a certain date the Soviet Union’s GDP would exceed that of the US, but each later addition delayed the date of overtaking. In the latest additions, that prediction was dropped from the book since by then it appeared ludicrous. As everyone knows, the Soviet’s centrally planned economy collapsed by the end of the 1980s, and Russian per capita and aggregate income remain far below America’s.

Japan’s economic growth was far more impressive than that of the Soviet Union since it continued at a rapid pace throughout most of the period from the 1950s to the end of the 1980s. In the 1980s, stocks on the Nikkei and housing prices in Japan reached enormous levels. Japan was substituted for Russia as the country that would before long overtake the US, and become the leading economic power (see, for example, Herman Kahn, “The Emerging Japanese Superstate: Challenge and Response). Yet Japan’s rapid growth stopped abruptly during the early 1990s, and that country Japan has largely stagnated economically for the past two decades.

These two examples do not prove that forecasts about China’s future growth will also prove to be much too optimistic, and that China’s growth rate will slow dramatically in the near term future. China’s continuing rapid growth over each of the past three decades despite many obstacles has contradicted the many naysayers during these decades. The energy of Chinese businessmen and workers has been refreshed after China’s long slumber as an economic power, and they are eager to try to recapture China’s past economic glory.

Still, I believe that China’s continued rapid growth is not assured, and that it must overcome several serious remaining obstacles if it is to join the club of rich nations. Tomorrow, the World Bank and the Development Research Center of China are issuing a joint report called “China 2030” that discusses major impediments to continued rapid growth. From media discussions of this report, I gather that the report and I are in general agreement on the importance of the impediments and the difficulty of overcoming them.

Perhaps the most important problem, one not easily corrected because of strong political opposition, is that close to one half of manufacturing output is produced by state owned enterprises (SOEs). These enterprises are less efficient on the whole than private companies, they often have monopolies in their sectors, they are not important innovators, and they get privileged access to capital from state-owned banks.

The China 2030 report argues that the SOEs must operate more like commercial companies, but that is not easy since officials from the Communist Party usually have high positions in these enterprises, and many of the larger SOEs are closely related to the Communist Party and the military. The ideal solution would be to privatize most SOEs, but that does not seem likely in the near future. This is partly because government officials would lose power if SOEs were privatized, and partly because the government fears that privatized companies would greatly cut employment and increase social unrest.Unfortunately for China, it would not be possible to close rapidly the per capita income gap with rich countries as long as a large fraction of manufacturing output in China is produced in over-manned and inefficient state enterprises.

Private companies in China have great difficulty borrowing from state banks since most of their lending goes on favorable terms to the SOEs. The financial crisis in the West has increased the reluctance of Chinese leaders to open their capital markets to competition from foreign banks and funds. Yet greater private banking access to Chinese companies and households seems essential for China’s continued rapid growth.

China is very worried about social unrest, as it observes the Arab Spring and other unrest toppling governments. Many protests in China originate in rural areas where farmers complain about their inability to sell the land they farm, and about local governments that arbitrarily take their land to build factories or infrastructure. The Chinese government also fears the 150 million migrant workers who complain about their low wages, and about the discrimination against them in gaining access to housing, schools for their children, and health services. Unrest also arises from non-migrant factory workers who complain about working conditions, and arbitrary differences in wages between workers with similar productivities. Basically, most of the unrest in China is due to the fact that much of the increase in inequality is not grounded in productivity differences, but rather in discriminatory government rules and behavior.

As China continues to grow, households will demand that a larger fraction of national income goes into consumer goods and services at the expense of investments and the accumulation of foreign reserves. Spending on consumer goods accounts for only 35% of China’s GDP compared to over 70% in the US. Chinese enterprises would be induced to look more to its domestic market if the Renminbi was allowed to float and appreciated a lot relative to the dollar and other currencies. For then Chinese companies would have more trouble exporting their outputs to other countries.

Ultimately, the challenge for China is to move more toward a private enterprise economy with flexible and competitive labor and capital markets, where assets like land can be bought and sold rather freely, and where workers are free to move around the country without discrimination, and to take whatever jobs they want. I confess I do not know if China will make these reforms quickly enough to prevent a sizable slowdown in their drive to becoming a rich country. The experiences of both the Soviet Union and Japan shows both that it is very hard for countries to change their ways when they have had considerable economic success, and that the slowdown in growth rates is abrupt once it happens. Still, I would not bet against the ability of Chinese leaders to radically change their economic ways once again if that becomes necessary to continue to grow rapidly.

 

 

 

 

Will China Overtake Us? Posner

Naïve extrapolation—predicting the continuation of a trend—is a human instinct, probably because the future does usually repeat the present (the sun rises every day, the weather tomorrow is likely to be similar to today’s weather, and so on), so it was a valuable instinct to have under the conditions in which people lived thousands of years ago. The instinct remains a deeply rooted part of human psychology: if a country’s GDP has been growing at a rate of say 7 percent a year for some years, the assumption is that it will continue growing at that rate, at least until some benchmark is reached, such as achieving a GDP per capita that is higher than that of the U.S. And that is the general attitude toward China; it will overtake us, first in aggregate GDP and then in per capita GDP; it will be the new America. 

But naïve extrapolation with respect to national economies is treacherous, as Becker points out with the examples of Japan and the Soviet Union, though the examples are slightly different: Japan was growing rapidly, and then stopped; the Soviet Union had stopped growing rapidly when (in our 1960 presidential election, for example) we began fearing that it was growing more rapidly than the U.S. The Soviet Union was about to enter the era of stagnation associated with the Brezhnev years. 

China may be an intermediate example. I do not trust Chinese economic statistics, so I don’t know whether its growth is as rapid as we think; but clearly it has grown rapidly in recent years. Becker points out to major obstacles to continued rapid growth: its inefficient public manufacturing sector; and its historic instability. 

The obstacle I would be inclined to emphasize is China’s mercantilist economic culture. Mercantilism is the national policy of maintaining a persistently very large positive trade balance in order to maximize employment and accumulate financial resources. When exports equal imports, a nation has essentially a barter system; it derives no net profit from foreign trade. When exports greatly exceed imports, resulting in a heavily positive trade balance, the exporting nation receives imports plus money rather than just imports in exchange for its exports. China, Germany, and Japan—but above all China—are mercantilist nations, which have accumulated huge balances of foreign currencies, particular U.S. dollars, by exporting to the United States much more than they import from us. 

A characteristics of mercantilist countries, including the three I’ve named, is that they have weak retail sectors. In the case of Germany and Japan, this is due primarily to restrictions on competition among retailers. In the case of China it is due to a scarcity of retail outlets, a weak system of consumer credit, deficient regulations protecting consumers, sheer inexperience in retailing, rampant corruption at all levels (weakening not only regulation but also control of managers and other employees by the owners of retail businesses), barriers to foreign retail competitors (imagine what a difference Walmart would make in China), and poor wholesale distribution (owing in part to transportation problems). It is far easier to create well functioning export markets that export mass-produced goods, as pretty much all that’s involved is building factories, preferably adjacent to ports to minimize transportation costs and delays, and importing raw materials. So the Chinese focus on exports is understandable. Becker notes that consumption contributes only about half the percentage of GDP in China as it does in the United States. 

But without an efficient retail sector, it is difficult to motivate workers in the long run; they may be paid well but be unable to use their money to buy the consumer goods and services that they want. This was a huge problem in the Soviet Union; it is a factor in the very high savings rates in Japan and Germany. 

China can more or less at will reduce the ratio of exports to imports, just by appreciating its currency, which would make its exports more costly and imports cheaper. But the immediate effect would be to cause unemployment in the huge export sector, and it would take, in all likelihood, many years for the unemployed factory workers to be re-employed in a gradually expanding service sector. 

To some extent this adjustment will take place independently of Chinese monetary policy. As wages of Chinese workers in the export sector rise, exports by other nations become more competitive, reducing Chinese exports, beginning a painful transition to a consumer society. 

I conclude that the prospects for a continued high rate of Chinese economic growth are uncertain.

Amnesty for Illegal Immigrants? Posner

Two of the candidates for the 2012 Republican presidential nomination—Newt Gingrich and Rick Perry (the latter later withdrew from contention)—advocated measures quickly denounced by other conservatives as forms of “amnesty” for illegal immigrants. Neither proposal was spelled out in any detail, and they are no longer receiving any attention at all. 

The problem of illegal immigration to the United States remains unsolved. There are some 11 million illegal immigrants, mostly Mexicans, in the United States. The number stabilized for a time after the economic crisis that began in 2008 reduced job opportunities in the U.S., but as the economy improves and violence in Mexico increases, we can expect the number to start growing again. It is neither feasible to deport any substantial fraction of the 11 million—we cannot at present (or in the foreseeable future) afford the necessary enforcement machinery, or the disruption of the economy that would be caused by withdrawing millions of productive workers (they would take a long time to replace)—nor possible to close the border with Mexico (because of the huge amount of lawful crossing of our border with that country) so that no (or very few) Mexicans can immigrate illegally. We are stuck with the 11 million, or something very close to that number. It is almost 4 percent of the population of the United States. 

One can imagine measures, short of mass deportation (the official name for “deportation” is now “removal,” but I will continue using the older and more familiar term), that would both limit illegal immigration and speed voluntary departure. One would be to make it a crime to be an illegal immigrant. Although an illegal immigrant is a law violator, he is not (except in a few situations, mainly if he has been deported previously and then returned to the United States without authorization) a criminal. He is subject to being deported but not to being imprisoned and then deported. If it were a crime to be an illegal immigrant, this would operate as a significant deterrent, especially if, as in the case of most federal crimes, the punishment were severe. Another effective though costly measure would be to detain anyone found to be an illegal immigrant, pending his deportation. The current practice, unless the immigrant is a criminal, is to order him to depart, and if he doesn’t obey the order there is rarely effective follow up; if he keeps a low profile, he probably will never actually be forced to leave the country. Still another effective measure, though it might require a constitutional amendment, would be to deny U.S. citizenship to illegal immigrants’ children even though they had been born in this country. And still another measure would be to repeal the law that allows immigrants who have been ordered deported to apply for cancellation of the order on grounds of hardship to their family; this suggestion is related to the immediately preceding suggestion because the family may include U.S.-citizen children who will remain in the U.S. when the illegal immigrant is deported, thus breaking up the family. 

I would not myself recommend measures such as these, because I do not think that the presence of millions of illegal immigrants is a problem serious enough to warrant enhanced enforcement measures, which would undoubtedly be costly. Illegal immigrants are not a net burden on the economy. They have some entitlements, notably to Medicaid, but far fewer than citizens and lawful permanent residents. They pay taxes, by and large. They are hard workers (Californians who want to criticize someone for working too hard say “he works like a Mexican”), productively employed, many in jobs that American citizens don’t want. It is true that there is a significant criminal element among illegal immigrants, mainly because Spanish speakers have a comparative advantage in the illegal drug trade, but the Administration is rightly focusing its enforcement efforts on them. It has not been shown that illegal immigrants are “taking” jobs from Americans, for many of the jobs they do, particularly in agriculture and domestic service, are unattractive to Americans. And of course illegal immigrants, like all residents, generate jobs by spending their income on consumer goods and services, thus creating demand for workers to provide those goods and services. When one considers the enforcement costs and disruptive economic consequences of deporting large numbers of illegal immigrants, the net benefits of such deportations, other than of criminals, seem negative. 

The question then is whether, if we are and should continue (or maybe have no feasible alternative to continuing) to tolerate the presence of millions of illegal immigrants in our midst, some form of amnesty would create net benefits for the society. The simplest amnesty law would be a federal statute authorizing illegal immigrants who had been in this country for say five years before the statute was enacted (to avoid a flood of illegal immigrants drawn by anticipation of the statute’s enactment) to apply for lawful permanent residence, which is the first step to obtaining citizenship. The application would be granted if the applicant had proved himself to be a productive member of American society who had developed substantial ties to this nation and was honest and did not have a criminal record, or if the applicant was a spouse, minor son, or daughter of such a person. The statute would sunset after one year. 

This would be amnesty, and would encounter the usual objection to amnesty: it encourages violations of law, in this case in the form of illegal immigration by persons who anticipate a future amnesty. That expectation would reduce the expected cost of illegal immigration. But perhaps not by much. The last, and as far as I know also the first, amnesty for illegal immigrants was the Immigration and Control Reform Act (also known as the Simpson-Mazzoli Act, after its sponsors), enacted in 1986. That is more than a quarter of a century ago, and how many foreigners would decide to immigrate illegally to the United States in the hope that a quarter century later there would be another amnesty? Moreover, such slight effect in encouraging illegal immigration as an amnesty would create could probably be offset just by making illegal immigration a crime rather than, as I noted that it is at present, merely a civil offense with the only penalty deportation. 

The biggest obstacles to amnesty for illegal immigrants are twofold. The first is political and is the recent surge of hostility toward them, which is puzzling but may be linked to the economic crisis that began in 2008 and is persisting, albeit lessening at last (almost three a half years after the crisis began with the financial collapse of September 2008). The government and the media have done a poor job of explaining the economics of the crisis to the average person, and as a result misconceptions abound, and one is that our economic woes are attributable to a significant extent to illegal immigrants who take jobs away from Americans and grow fat on “safety net” programs, thereby exacerbating the federal budget deficit. 

The second obstacle is the perceived failure of the 1986 amnesty. The basic condition of eligibility was continuous residence in the United States since 1982. Some three million illegal immigrants were eligible, and about that number of illegal immigrants obtained amnesty—but apparently fraud in applications was rampant, so that many of the amnestied had been here for a shorter time or were otherwise ineligible. And just as I suggested above, the amnesty was coupled with measures to discourage further illegal immigration—and these failed utterly to stem the tide. 

The prospects for a new amnesty are therefore bleak, though I believe we could learn from the failures of the 1986 law and design an amnesty program that would, if not solve, at least measurably alleviate, the problems created by illegal immigration.

Illegal Immigration-Becker

I agree with Posner that illegal immigrants are generally productive members of the labor force, and make relatively little use of taxpayer-funded programs, such as Medicaid and other welfare programs. On the other hand, they pay little in taxes since they are frequently paid in cash and often do not pay either social security taxes or income taxes. In effect, they largely receive as take home pay what they add to the output of the country.

It is also abundantly clear that, despite the rhetoric in the Republican campaign debates, the US will never try to ship 11 million illegal immigrants back to Mexico or the other countries they came from. Some form of de facto amnesty may be inevitable for the vast majority of these immigrants. Still, I find it difficult to simply accept wholesale violation of US immigration laws, especially since, as Posner indicates, illegal immigration will pick up again as the American economy continues to recover from the Great Recession. Further immigration from Mexico is surely to be expected as long as typical young Mexican workers can increase their earnings several fold by migrating illegally to the United States.

Beyond amnesty, what can be done to discourage further illegal immigration to America, and reduce the number of illegal immigrants who are already here?  Perhaps extending the wall on the Mexican-US border would help a lot, although I anticipate that would-be illegal immigrants and their “mules” would create additional crossing points into the United States where there is no wall.

A more promising approach is to tighten the enforcement of laws against employers who hire illegal immigrants. That is much more efficient than directly hunting down illegal immigrants since the number of employers using illegal migrants is much less than the number of illegal immigrants. Tightening laws against employing illegal immigrants might be effective even without sending more illegal immigrants back to Mexico since the cost of employing them would rise, and that would reduce the earnings and jobs available to illegal immigrants. As a result, fewer immigrants would want to come here illegally, and some of those already here would decide to return voluntarily to the countries they came from. However, employers of illegal immigrants have political clout, and they complain to government officials when enforcement efforts against these employers is stepped up- recently Chipotle Mexican Grill voiced such complaints when they were caught employing many illegal immigrants. This opposition to enforcing the law more diligently against employers of illegal immigrants reduces the political attractiveness of that approach.

Despite the many difficulties they face, some illegal immigrants have done well: they have risen into good jobs, and they are very much committed to staying in the United States. These (and other) illegal immigrants would be willing to pay a lot to change their status to legal residents. Why not accommodate them, and offer all illegal immigrants the opportunity to buy their way into legal residence? A price would be set, say for concreteness $50,000, such that illegal immigrants who pay that price could change their status to that of legal residents.

Allowing illegal residents to buy their way into legal status would reduce the opposition to these residents because of a belief that illegal immigrants get a “free ride” into the various advantages offered by the United States. Yet it could also be attractive to illegal immigrants, especially those who have made commitments to the United States, because it removes the risk that they would be deported, perhaps after many years in America. It would also have the political attraction of adding money to federal revenues that is especially welcome in these days of large federal budget deficits.

To be sure, it could be hard for even successful illegal immigrants to raise $50,000, or any other significant payment to become legal residents. A way to handle such liquidity problems would be to require only a partial payment up front-perhaps 20%, or $10,000 in my example- and start a government loan program that would make the rest available to be paid off over time. In many respects, immigration loans could be modeled after student loans. Such a loan program would be especially attractive to the  well established successful immigrants who have been in this country for many years, but do not have much in the way of liquid assets.

I have argued elsewhere (see my monograph ”The Challenge of Immigration: A Radical Solution”, 2011) that the right to immigrate by paying an “admission fee” should be available to all potential immigrants, not just to those who immigrated illegally. However, even without such a radical change in overall immigration policy, the right to pay for legal residence could apply only to illegal immigrants. In fact, it might be politically much easier to implement such a policy only for illegal immigrants because of the considerable opposition to these immigrants. Many in the US and in other countries with considerable illegal immigration might support a system that requires these immigrants to pay for the right to stay legally.

Is Capitalism in Crisis? Becker

 

Capitalism in Crisis is the title of a long series of articles in the Financial Times by many participants. No doubt, the severity of the Great Recession has temporarily weakened the respect for capitalism, for “free” markets, and among other things, for the Chicago school of economics. Yet I will argue that the FT’s title should have had a question mark, as in: Is capitalism in crisis? My answer is that while certain aspects of the economic organization of capitalist countries like the United States should be changed to reduce the chances of future severe recessions, it remains true that economies which are competitive and capitalistic have the best prospects for sizable long-run economic growth.

The Great Recession reinforced the lesson of prior panics and financial crises, lessons forgotten during the Great Moderation from about mid 1980s to 2006, that the financial sector has a fundamental built-in instability. In the past this was mainly associated with “runs” on banks, as during the Great Depression of the 1930’s. The instability of modern financial institutions is no longer much related to bank runs because of deposit insurance; rather it is mainly the result of the incentive for financial institutions to raise their profits by increasing their assets relative to their capital.

One straightforward way to reduce this instability is to raise capital requirements of banks and other financial institutions. Greater capital would provide banks with bigger cushions if the value of their assets fell as a result of a crisis in asset markets. Any mandated capital/asset ratio should be greater for banks that are considered too big to fail than for other banks in order to make it less likely that larger banks would need a bailout. The United States and Europe have already moved to increase capital requirements for banks. These rules will have to be adapted over time as banks discover ways to mitigate the impact on their lending.

Asset price bubbles are another issue to deal with. The collapse of the “bubble” in Internet companies in the US during the late 1990s did not have a major impact on the US economy because it affected only a small part of total assets. Similarly, the many bubbles in local housing markets in the past, such as the Florida land boom of the 1920s, greatly affected these local markets, but did not have much affect on the US economy because they were not important to the overall economy. However, unlike these previous local housing booms, the boom from 2002-07 was national, although clearly stronger in certain regions, like Las Vegas, than in other regions. The collapse of this boom had a big enough impact on consumer and bank assets that it did seriously affect the US economy.

The boom in housing prices was related to the low interest rates after the early 1990s, and also to the growing number of mortgages that required neither much of a down payment nor decent credit histories. To reduce the likelihood of such housing bubbles in the future, it might be wise to require larger down payments to get mortgages, so that mortgage owners would have more “skin in the game”. Of course, politicians would likely oppose higher down payments because younger and other households with limited capital would find it harder to buy homes.

While vast attention has been given to the failures of capitalism after the financial crisis erupted, government “failures” that contributed to and prolonged the crisis have received much less attention. Yet government failures were numerous and important. These failures include the Fed’s decision to keep interest rates low after 2003 even though asset markets were booming, and the many bank regulators and other government officials who cheered on the expansion of bank assets rather than trying to control assets/capital ratios of banks. Government failures also include the congressmen and other government officials who encouraged, and even required, banks to offer mortgages to households with bad credit histories, and to households who could provide only a small amount of equity in their homes. Not the least of government failures are the many state and local governments, and countries like Greece, Ireland, and Portugal, that took advantage of the good times preceding the crisis to increase greatly government spending and debt beyond reasonable levels.

It is because of government regulatory failures that I believe the best hope for preventing banks and households from excessively expanding their debt in the future lies in rules, like capital requirements, rather than in greater discretionary power to regulators. Regulators misuse discretionary authority because they often get caught up in the same euphoria that banks and households succumb to. In addition, they sometimes get “captured” by the banks and households they are regulating, and end up being cheerleaders for these sectors.

Yet the fact that financial and housing markets did “fail” in the years leading up to the financial crisis (although their failure was partly induced by bad government policies and poor regulatory oversight) does not add up to a crisis in capitalism as a whole. The vast majority of competitive markets in a capitalist economy like that of the United States performed quite well both before and during the crisis.

China’s form of state capitalism is often considered to be a good alternative to competitive capitalism. China has had an astounding economic record during the past 30 years, but the private sector has been the most productive and dynamic part of its economy. China’s growth started when in the late 1970s it opened farming to the private sector. China has steadily increased the share of output produced by the private sector. Public enterprises are still important, but China has grown despite the important of state-owned enterprises, not because of it.

Capitalism lost prestige as a result of the severity of the Great Recession, but so too did governments. I do not believe that capitalism is in a real crisis, partly because the defects in financial and housing markets can be corrected to a significant extent. More importantly, reliance on competitive capitalism has been the only way that countries have been able to reduce poverty and continue to grow over long periods of time. The great majority of developing and other countries will not forget this fundamental reality as the world pulls out of the Great Recession.

 

 

Is Capitalism in Crisis? Posner

With the collapse of British socialism and Soviet (and satellite) communism, and the rapid economic growth of countries like China and India when they took significant steps toward a free-market economy, it seemed that capitalism had triumphed. But today, in the wake of the financial collapse of 2008 and the ensuing worldwide economic downturn, there are a growing number of doubters. 

As Becker points out, and as I have pointed out in my writings on the economic crisis of the past three and a half years, a combination of unsound monetary policy and regulatory laxity (nourished by the complacency of many influential macroeconomists) triggered a sudden, broad, and deep weakening of the banking sector (defining “banking” broadly to include any financial intermediary, whether or not it is regulated by banking agencies), a sector that is fundamental and pervasive in modern economies. Banking is inherently risky, because the basic model of banking is borrowing short and lending long (to create a spread, because interest rates are higher the less liquid the loan; without a spread a bank has no income). By 2008 most bank capital, though indeed short-term (much of it, indeed, borrowed overnight), was not insured by government. So the collapse of the U.S. housing market, in which that capital was heavily invested, precipitated a series of runs, and the runs froze credit, which disrupted the nonfinancial economy, leading to a downward economic spiral (layoffs by financial and nonfinancial firms alike, resulting in lower spending by consumers, in turn resulting in more layoffs, and so on). 

Banking is fundamental to capitalism, and financial instability is an inherent danger in banking, and a banking collapse can create widespread and persistent economic distress, and this combination helps to explain why the worldwide depression of the 1930s generated unprecedented support for socialism and communism. But socialism and communism have been discredited, and so there is no longer an alternative to a capitalist system—and thus no alternative to sensible monetary and regulatory policies that would avert a repetition of the 2008 and earlier financial crises. 

I think there may be a looming crisis of capitalism, though one that has nothing to do with banking, but rather with technological progress, and specifically with the effect of that progress on income inequality. Technological progress in recent decades has included not only the well-known advances in computerization, communications, and medical treatment, but also important advances in marketing, including political influence and manipulation, and management. The overall effects of these advances on many fronts have included a sharpening of competition, an increase in government debt to finance middle-class entitlements, particularly medical, a reduction in the demand for manual labor, and an increase in the financial returns to IQ and to higher education (which are correlated). These developments seem to be increasing the inequality of income and wealth and creating sharper class divisions than the nation had become accustomed to in the decades following the end of the 1930s depression. 

There is nothing in the economic logic of capitalism, any more than in the biological logic of evolution, that drives an economy toward income equality. The basic logic of both systems is competition, and competition produces losers as well as winners. A class of workers can become extinct, just as a species can. The difference is that the combined effect of envy and democratic politics can result in policies that distort competition in order to increase the welfare of the losers in the competitive struggle. Such policies tend to be inefficient and thus to retard the smooth operation of capitalism as an economic growth engine. Evidence for this proposition is found in the sluggish economic performance of many European nations. 

Growth-impairing policies that might reduce economic inequality include restrictions on the immigration of wealthy persons and highly educated persons, the promotion of unionization, heavy business taxes, high marginal rates of personal income taxation, government subsidization of business activities (“picking winners”), high government debt, a generous safety net that reduces incentives to work, and heavier government financing of education for members of lower-middle-class families. Such policies—most of them involving turning back the clock to the 1950s—would probably reduce the rate of economic growth. Could the impact of that reduction on future welfare be offset by gains in social peace? At present, the answer seems to be “no,” but if signs of social unrest, such as the Tea Party and Occupy movements, grow, the answer may at some point need to be reconsidered.

Physician-Assisted Suicide—Posner

Medical science has made and is continuing to make rapid advances in extending longevity. But frequently the extensions involve prolonging miserable lives without improving them—the lives of people gravely damaged in accidents (as by being rendered quadriplegic), or suffering from painful, even grotesque, illnesses (like amyotrophic lateral sclerosis), or horribly deteriorated mentally or physically by old age, or in terminal decline and clearly doomed though medical science may keep them alive for a few more months. Especially in the United States, with its culture of optimism (perhaps a consequence of its being a nation of immigrants) and its religiosity, most people want to postpone dying at whatever cost in discomfort. Why religious people tend to feel this way is unclear. For some Christians, dying in pain is welcomed or at least endured because it makes them feeler closer to Christ, who died in pain on the cross; others believe that the decision as to when a person dies is reserved to God—that is the stated basis of the official Catholic position that suicide is a mortal sin. 

But not all people feel that way, even in the United States. Many people who are suffering acutely, or anticipating suffering acutely, incur net disutility from continuing to live, especially but not only very old people. Some people who want to die commit suicide, but others do not—out of fear that their attempt will fail and leave them even worse off than before, or because they lack confidence that they can kill themselves discreetly and painlessly, or because of the stigma that attaches to suicide, or because of the public character of a suicide—one cannot dispose of one’s own corpse. These people who want to die but shy away from committing suicide show by their inaction that actually they derive greater utility from continued to live, because of the cost of suicide to them. But they would be better off if they could eliminate that cost, or at least reduce it to the point at which they would consider themselves better off dead than alive. 

Which is where physician-assisted suicide enters the picture. The costs of suicide that I listed in the preceding paragraph all disappear if a physician is the agent of death—even the stigma cost, because if killing a person who wants to die is a lawful form of medical “treatment,” this signals that suicide is proper, at least when a physician by assisting in the act validates its propriety. 

The religious people whom I mentioned will not be assuaged; but religious people shouldn’t be permitted to impose their sectarian values (as distinct from the values they share with the population in general) on others, including both religious and non-religious people, who do not share the abhorrence that some religious people feel toward suicide. 

Paradoxically, allowing physician-assisted suicide could (though it seems unlikely that it actually would) reduce the suicide rate. A just-published biography of the very distinguished federal court of appeals judge Henry Friendly reports that he committed suicide in his 80s because, suffering from a variety of ills that were not disabling and did not prevent him from doing his judicial work, he was afraid that he would become disabled and when that happened be unable to end his life though desperately eager to do so. Had he been able to pre-arrange a painless physician-effected death to occur when he reached a specified stage of disability, he would not have killed himself when he did. Physician-assisted death is thus an option, and a less costly one than killing oneself unaided.

Physician-assisted suicide is now legal in Belgium, Colombia, Luxembourg, the Netherlands, Switzerland, and three U.S. states (Montana, Oregon, and Washington). It is quasi-legal in France, and is tolerated in a number of countries in which it continues to be illegal. In the United States it is opposed by a majority of physicians, although mainly older ones. I think their opposition is based largely on public-relations considerations similar to those that make physicians unwilling to serve as executioners, though they would be the logical persons to give lethal injections to the condemned. The image of the physician as a lifesaver is blurred if he is also a  lifetaker.

There is also concern that families of a demented or otherwise badly disabled person, or even health insurers and Medicare administrators, will pressure physicians to end the person’s life, even if it is known that the person would have wanted his life extended as much as possible regardless of the quality of that extended life. Nazi Germany undertook large-scale euthanasia in the 1930s, though mainly on eugenic rather than cost grounds; the program was abandoned under Catholic pressure but there is fear that physician-assisted suicide might be the precursor for renewed support of involuntary euthanasia—though that seems extraordinarily unlikely. Countries and states that authorize physician-assisted suicide impose strict requirements that minimize the danger of involuntary euthanasia—too strict, some believe (such as the requirement in Dutch law that the patient’s suffering be “unbearable” before he can invoke physician assistance to end his life). These requirements (which further reduce the stigma of physician-assisted suicide by confining the practice to cases of genuine desperation) are not airtight, or uniformly observed. Any system will be abused. The question is whether the incidence of abuses, combined with the other costs of the system, outweigh the benefits.

Suicide and its Assistance-Becker

Let me state at the outset that I believe a free society should allow the right to end one’s life through suicide. A suicide decision is not made lightly since the great majority of people cling to life even under the most dreadful circumstances. Only people who feel quite hopeless about their future seriously contemplate suicide.

Rational forward–looking persons with good information about their future circumstances would commit suicide only when convinced that they would be worse off by continuing to live. David Hume said (in his Essays on Suicide and the Immortality of the Soul) “That suicide may often be consistent with interest and with our duty to ourselves no one can question, who allows that age, sickness, or misfortune may render life a burden, and make it worse than annihilation.” Schopenhauer was also confident about the rationality of suicide, “It will generally be found that, as soon as the terrors of life outweigh the terrors of death, a man will put an end to his life” (Parerga and Paralipomena).

Although I support the right to suicide, ideally it is best to have a cooling off period to make sure that a suicide is not attempted in a moment of great agitation that will pass before long. For example, a teenage boy may hang himself because he is bluntly rejected by his girl friend. If his hanging were prevented, he would likely have realized in a few months that he will be attracted to other girls as much or more than to the one who rejected him. He would be ashamed that he was so upset by her rejection.

Anti-depression drugs and stays in psychiatric hospitals are attempts to allow momentary agitations to pass. Many individuals voluntarily seek psychiatric help and go on these drugs when depressed and feel that life is not worth living. A difficult question for persons who support the right to suicide is when, if ever, governments should be given the power to forcibly prevent suicide attempts in order to allow time for less hasty decisions? This is especially a difficult question because individuals who make one attempt at suicide are likely to try again at a later time.

However, momentary feelings of despair are not usually the cause of the desire for assistance in committing suicide. Elderly men and women with painful diseases and terminal illnesses are usually the ones who want help in committing suicide since their pain and suffering are not temporary and are unlikely to pass. They may hope that new medical discoveries will reduce their pain, and perhaps also significantly extend their life expectancy. Such hope is what keeps many elderly persons with serious and painful illnesses upbeat and willing to face the future.

Others give up hope of any significant improvements in their condition, perhaps because of slow progress in combating the diseases they have, such as lung cancer or painful arthritis. Some of them may seek assistance in ending their lives, partly because they are too weak to do that on their own. A more important reason why they seek assistance is a fear of death that prevents them, so to speak, from pulling the trigger on their lives. After the sentence quoted above Hume adds “I believe no man ever threw away life, while it was worth keeping. For such is our natural horror of death”, and Schopenhauer makes the same observation “But the terrors of death offer considerable resistance…”

Some argue against the right to suicide not on religious grounds, or on libertarian considerations (John Stuart Mill was against suicide because he believed no one has a right to take away the need to make future choices), but because it hurts children, parents, and spouses. Yet an altruistic person takes into account the effects on those he loves in his contemplations about whether to commit suicide. Conversely, they try to convince him to seek medical help instead. Just as modern societies do not prevent a person from marrying someone disliked by his parents, I see little reason why society should interfere on these ground with decisions about suicide.