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02/12/2012

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TANSTAAFL

Posner hits the bullseye. Capitalism itself is not the problem. "Envy and democratic politics" are a toxic mix, fueling a feedback loop of sorts that hinders economic growth and will reduce Americans to squabbling over how to carve up a stagnant pie.

Mitchell K.

Posner asks, "Could the impact of... reduction on future welfare [via growth-impairing policies that reduce economic inequality] be offset by gains in social peace?" He says that the answer seems to be "no." If the European experience is any indication then the answer is a resounding "no" (perhaps it is "NO!").

Reducing economic inequality by impairing growth may purchase short-term harmony, but it also fosters government dependency and a political class that promotes dependency (and class envy) to enlarge its political power. Social unrest during this recession has been far worse in Europe in spite of (or perhaps because of!) equality-friendly welfare policies.

Of course, some wealth redistribution in a capitalist society is politically inevitable (especially in an envious one). However, when society pervasively uses redistribution to appease the envious and purchase social peace then it will likely become an envious society if it is not already.

Thomas Rekdal

Economic contractions, no matter how severe, do not portend a crisis of capitalism, unless there is some more promising alternative; and Judge Posner is right, I believe, in pointing out that none seems to be on offer.

What we face is not a crisis of public confidence in capitalist institutions, but a crisis in the political culture of all modern democratic states. The early critics of democracy, in the late 18th and early 19th centuries, frequently expressed the fear that the lower orders, once they grasped the possibility of voting themselves benefits at the expense of others, would continue to do so until the state itself went bankrupt. These fears have been dismissed, along with Marx's prediction of the increasing pauperization of the the laboring classes, because they have not been borne out by history. But over the last forty years an entitlement mentality does seem to have developed in most democratic states which makes any rational system of public finance nearly impossible. Perhaps democracy's early critics only got the timing wrong.

Ricardo Sanchez

As a corporate attorney, I can confirm Judge Posner's great fear regarding wealth redistribution through government action. The United States for the last 30+ years has institutionalized a massive redistribution of wealth...to big business and inherited capital! Yet, it has been shown that 70% of NEW jobs are created by small business.

Individual incentive and entrepreneurship is the engine of the American economy. Apple computer, the most valuable company in the world, was started in a small garage and was personally financed through middle class wages. Mr. Becker correctly identifies China's competitive disadvantage. They have succeeded despite the government picking big winners. I would hope that Judge Posner revisit his understanding of capitalism. Everyone should revisit Adam Smith's "Wealth of Nations", as relevant today as ever not to mention his "Theory of Moral Sentiments."

Stan in Michigan

We're in a competition with China and other low wage countries, and if we're to hold our own we need as well educated a workforce as possible. So I find Richard Posner's inclusion of heavier government financing of education for members of lower-middle-class families in his list of growth inhibiting policies to be a real puzzle. If spending more on educating the middle class and the working poor is bad, would spending less be good? As George Will said in another context, the question answers itself.


Just a first year law student

The most prominent examples of government "picking winners" I can think of - subsidizing fossil fuels and mega farms - do not reduce economic inequality, they exacerbate it. And I find it unfortunate that the only result of the "combined effect of envy and democratic politics" referred to is distortion towards welfare of losers with no mention of how the same is often used to artificially prop up winners; although in the latter case it would be more appropriate to call it the "combined effect of greed and undemocratic influence peddling."

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Stephan Wehner

Not giving up the dream, are you? Very stubborn.

Seems to me that whatever measures you're suggesting have been applied in the past (Thatcher / Reagan), but without any impressive results.

Cheers,

Stephan

burberry outlet

I would agree with the other side aswell, great work

NEH

Although, I am mostly in agreement with our Host's analysis of current crisis, it mostly deals with microeconomic issues as opposed to more macroeconomic issues which are of vital importance to understanding and correcting the current crisis. Such that, we need to view social, political and economic phenomena operating on a sliding scale or a "pendulum system" someplace between two extremes. Keep in mind that this "scale" can be represented by "Capitalism" at one extreme, followed by "capitalism", then "socialism" and finally "Communism" at the other extreme and at any point in time the pendulum is moving through any of the positions on the scale.

Yet, what is causing this continual movement? Perhaps it is the phenomenon known as Kondratiev Waves in action. Such that, the socio-economic order truly operates on a cyclical basis between booms and busts. which goes far in explaining the economic cycle. See Schumpeter's "Business Cycles" and Keyne's "General Theory of Employment, Interest and Money". Yet, there is something else going on in this Crisis and I attribute it to the phenomena of "Hoarding of Capital". All economic systems operate on the principle of "Trickle Down/ Trickle Up". A dynamic system operates with Trickle Down and Trickle up working in unison and the end result is an egalitraian distribution of "wealth". When the system is broken (which it appears to be at present) Capital or wealth accumulates in one sector of the cycle stagnating. Which causes the overall economic system to lock up.

As for breaking up this economic dead lock and recreating a dynamic egalitarian socip-economic system one needs only look to F.List's development of the "National System of Innovation", A.Hamilton's various reports to Congress, especially the one on "Manufactures", H.Carey's "The Harmony of Interests" and fundamentally principles espoused in the "American School and Theory of Economics".

But for success, as has often been said, "We can succeed only by concert. It is not "can any of us imagine better?" but, can we all do better?" The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulties, and we must rise - with occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves and then we shall save our country."

TANSTAAFL

Kondratiev waves? More likely "it is the very error of the moon; she comes more nearer earth than she was wont and makes men mad."

NEH

affl, Your very question points to a lack of training and understanding of the field of General Systems Theory and it's application to Economics. As for the rest, it seems too be remeniscent of the Ancient's Anthropomorphic World View where Fortune, Destiny and Lot were controlled by a plethora of Gods and Goddesses... ;)

Jack

"the promotion of unionization"

.......... these guys really have a "case" of it.

Do "we" know that unions, especially of the private sector cost us money? One the one hand "the market" likely offers "someone" at a cheaper hourly rate.

But! unions offer those who've committed to the trade, typically went through a multi-year apprentice program to not only learn their craft but to work safely (many will note the soaring costs of Workmen's Comp insurance) and! surely there are benefits in the prospective employer simply calling the union hall, rather than hiring and firing those who show up after running an ad.

BTW...... does Posner agree that perhaps second only to the AMA or the Dentists Assn that the Bar Assn is the strongest trade union in the nation? Why would we not allow one of those doing the grunt work of para-legals the option to hang out a shingle offering his services for simple divorces, wills for most of us, or handling small claims issues?

Jack

Thomas? Almost completely contradictory to the evidence.

The first that of capitalism, the system or engine, not being in crisis. So far we're not likely to toss the baby with the bath, but our "capitalism" suffers a host of maladies from anti-competitive special favors, laws and subsidies as to no longer be recognizable. For Exhibit A the 20 years of pawning off false flag "derivatives" and the corruption of the "financial sectors". Crisis? ask those of the long week-end when they woke up.

And... agreed, it turned out that the working folk have been too far from the centers of power to vote themselves nation tanking benefits...... that has been left to the wealthy who designed most of it for themselves and the corporations.

Marx? and the pauperization of those doing the work? To the benefit of the "owner class?" And which Marx predicted would tank the system.

Here's the graphs of the, now forty year trend:

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

......... do you see an "entitlement mentality" in these graphs? other than in the top couple of percent?

Lastly, looked around? or listened to the honest economists? What we have is a D E M A N D starved crisis in which 80% of our work force can supply all that is demanded, as those of long stagnant incomes, and lately no incomes suffer with unmet needs and wants that for the lack of any discretionary income are not turned into economic demand.

Crisis? We're about one fifty buck "Oil Shock" or another gob of "toxic assets" tumbling out in plain sight, from a complete death spiral. And.......... as in the last Depression, what effect on "capitalism" is such a failure likely to have?


NEH

Burberry (nice clothes, a little pricey though), FDAASDFDFEW? May I suggest an Acronym translator tag? See Strunk & White. ;)

TANSTAAFL

TANSTAAFL confesses envy for the impenetrable FDAASDFDFEW acronym.

John

Economic growth for what? To what end? these are the questions that Posner refuses to consider. It is only when we are explicit about the ends of economic growth, and not just the means of economic growth, that we can fairly argue whether redistributionist policies are counter-effectual.

Jack

John....... as near as I can tell, after 30 plus years of working folk not participating in the "rising tide" it's just more of the ALL FOR THE RICH agenda that, apparently, is a great flaw in unregulated "capitalism" and greatly exacerbated by "GOP" tax bennies for the richest among us.

BTW...... little has been made of the inducement of tax deductible interest on homes, coupled with NO cap gains on remodels, flips and appreciation gains as a means of laundering high incomes as a tax dodge.

TANSTAAFL

John's emphasis on "the ends of economic growth" -- unspecified ends, at that -- has the noxious stench of Marxism.

Paul Smith

Merci beaucoup pour votre article.

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NEH

affl, Name Calling again as insightful analysis? When was the last time you washed your clothes and took a shower? Is this the "Noxious Stench" of "TANSTAAFL"? ;)

Dan

I really do not understand why "banking is fundamental to capitalism". For me that is absolutely not true. Even bankers have often a hard time trying to explain what value for society (meant as our capitalistic model here) they contribute.

They do not contribute, except for work for their employees.

What they do is suck out the "system". And I am no leftist.

I would argue that money is created by the people. All people in some way doing something create the GDP. QEx aside, the central bank (being a private bank in the US - hello?) should print money to keep this exchange of goods and services flowing and at equilibrium.

But have you ever tried to go to your local branch of the central bank and get the money you personally created?

No, you have to go to a private bank and ask politely for the money - created by the people - at often outrageous interest rates. While the bank gets it for a much cheaper price. And today they keep it, because their system is not sustainable, just to survive. It is not sustainable, because they can create endless money which does not exist. All fine, until there is a crisis.

No, they are not fundamental to socuiety. They suck up growth by charging for something they do not own. I call this parasitic.

Dan

Jack

Tans? Down through history hasn't the fall of capitalism and the rise of socialism or your "Marxism" often correlated with the over consolidation of wages and wealth in the hands of the very few, leading to collapse and chaos?

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

NEH

Jack, Touche! The majority of socio-economic revolutions and their intellectual precedents of the Nineteenth and Twentith centuries can be attributed to just such a phenomena. From the excess's of the French Revolution through the Russian Revolution to the rise of the NRA and the WPA here in the States during the 1930's as an alternative to the Russian experiment... ;)

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