« A Further Comment on Contraception and Catholicism—Posner | Main | »



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

steve blitz

perhaps you can send this note to your professional colleagues, members of the house and senate, and even some members of the fomc, who believe that unemployment will drop as soon as unemployment benefits are ended.


"The proper comparison is between actual GDP and the GDP trend line (3 percent a year)—until actual GDP rejoins the trend line, the economy is in depression."

Odd definition. It assumes that the GDP wasn't affected by the asset bubble (or that a similar asset bubble can be inflated) and that it represented long-term sustainable growth (i.e. private and public deficit spending did not temporarily increase it).

"The economy cannot rejoin the trend line with unemployment as high as it is"

Also a very strange statement. GDP just depends on the amount of value produced in the economy. It has no direct relation to the amount of workers needed to produce it - unless product mix and productivity are unchanged. Too many assumptions have to be made before that is a plausible statement. The length of the recession, the deep rot in the entire system and the really different global landscape make this episode very different from previous downturns.


"...[T]here is an argument for the government’s borrowing those savings and putting them to work..."

Wouldn't it be better to eliminate interest paid on excess reserves? The effect of releasing the savings from inert forms would be the same. It could also be done immediately with a minimum of political fallout.

Barry Cooper

I found the second chart in this link interesting: http://www.cbo.gov/ftpdocs/115xx/doc11524/11524_Summary.pdf

What it shows is a vast increase in bank deposits, starting in 2008. Given that bank lending acts as a multiplier in money circulation, this has to have been deflationary.

Yes, I remember that everybody stopped lending. But clearly, the problem is not a lack of capital, but a lack of confidence. There is plenty of money out there that could be circulated. Bernanke is trying to force investment by handing out money, but that won't make Obama not our President.

The problem is not just fear of our national debt, but something approaching terror on the part of many that we have elected someone who is certainly incompetent, and who is probably sympathetic to notions of ending our Constitutional Republic, in favor of a more "just" social order. Certainly, he was surrounded by Communists as a child, and continued to seek them out as an adult. One "William Ayers" was on the White House guest list last year. They claim it wasn't that one. Which one was it? No answer has been forthcoming.

This is an existential fear, that we are being attacked from within, that is unique in American experience, with the exception of the era of FDR. That era, of course, saw the rise of Fannie Mae. To it, then, we can with justice attribute our current problems. And Social Security overload will be along shortly.

It is clearly something not feasible any time soon, but I have written an essay offering a radical solution to our problems, combined with a new paradigm for understanding what Capitalism is and isn't, from the perspective of a self identified classical Liberal. That series of pieces, which includes one arguing not just that Keynes was wrong, but intentionally wrong--is linked (if I did this right) on my name.

T Rankin Terry, Jr., Esq.

I hope that as time goes on that one or more economist will do some work on modeling what would have happened if the excesses had been allowed to "creatively distruct". The first work will probably be by Masters or PhD students or Assistant Professors wanting tenure. The general/lay books and long (e.g., New Yorker)magazine articles may come later.

My point is that there should be some serious comparisons of what happened with what might have happened.

This would test a plausable theory, that is, that by failing to first bail out the little people before bailng out the big people a great injustice and maybe lasting damage was done. No one even thought of a "credit facility" for the fiscally distressed lower and middle class. Now you have the lower & middle class scared -- the 2010 election showed that. The explicit and implicit judgement of the government (the "free market" Republicans, the "liberal" Democrats, and the FED) was made that the "moral wrongs" of the little people (over spending & borrowing: not saving) must be punished to the limits of free market economics but the "moral wrongs" of the big people (over leveraging etc.) were to be rewarded by being given money and credit and otherwise subsidized against all known tenants of free market economics.

No matter what methods the most conservative to the most liberal economists suggest to raise employment all say that it will be very difficult to do. Thus, the higher probabilities are that the fear(s) of 2010 will still exist in 2012.

The great minds need to be applied to the problems of coming up with some serious bail-outs for the little people within the next two years. I don't think a few dollars a week off of the FICA tax or the limp mortgage work-out programs like HAMP are going to do the job.

One idea is to liberalize the Chapter 13 bankruptcy rules to allow the little people to "burn" or "cram down" their excess debt. They are never going to be able to pay it anyway and to have it hang over their heads for 10 or 15 years is not going to provoke, among other things, increased spending (or saving). If they save anything their creditors will levy on it!

As an potential alternative it may be prudent to plan for social programs to deal with a base unemployment rate of 9 or 10%, accept 9 -10% unemployment as the new reality, and fretting about it.

ugg outlet

How can ability forget not happy thing?Bless you happy every day


Endorend: Interesting thoughts:

"The proper comparison is between actual GDP and the GDP trend line (3 percent a year)—until actual GDP rejoins the trend line, the economy is in depression."

Odd definition. It assumes that the GDP wasn't affected by the asset bubble (or that a similar asset bubble can be inflated) and that it represented long-term sustainable growth (i.e. private and public deficit spending did not temporarily increase it).

JJJJJJJ My take is that of the tremendous construction boom built on fraudulent banking practices did affect GDP and, for a time, masked the problems of A. stagnant wages for working folk. B. structural unemployment as high per capita productivity and foreign labor provides all that we demand with less than full employment........ as did the stock market boom before.

"The economy cannot rejoin the trend line with unemployment as high as it is"

Also a very strange statement. GDP just depends on the amount of value produced in the economy. It has no direct relation to the amount of workers needed to produce it - unless product mix and productivity are unchanged.

JJJJJJJ The catch here is that GDP is what is produced and SOLD. Given flat and declining wages for those still working and high unemployment we're a DEMAND starved economy. Flat incomes for most of us in an economy 70% dependent on consumer spending = flat and declining economy. Unemployeds are unemployeds due to lack of demand.

Agreed that "rot" and global landscape makes this mess very complex.


Rankin" Very good thought provoking observations.

These two graphs alone should have warned "bankers" worthy of the title that something was very, very wrong. In any market such steep upward slopes should have triggered conservatism in lending ratios as well as interest rates demanded on flaky paper.

The first graph shows the nationwide departure from history housing price trend lines which should have been enough for .. concern. The second shows an even broader departure of the rent vs own cost ratio. This graph is nationwide -- you know the data upon which the derivative boys claimed to be the basis for the "home values across the nation can't fall...." theory.

At the bottom are charts for even steeper bubbles in various "hot markets" that in a better time would have triggered a local response.


You make some good discussion points. Assuming "bankers" acted fraudulently to the great benefit of themselves (to believe otherwise would be to buy the "gee whizzes" our best and brightest have been chanting when hauled up before Congress) as the bubble relentlessly expanded, and were later made mostly whole along with their investors what of those who WERE victims of the greatest fraud in history? With FURTHER consolidation and political power?

As bankruptcy exists in law to exonerate those so upside down as to have no hope of paying their bills it would seem this mess is reason to ease housing related bankruptcies and at min to roll back the changes implemented by the Bush admin seemingly at behest of often predatory credit card issuers.

Seeking "justice" is fairly hopeless though. Here in AK along with much of the "oil patch" we had a steep housing and commercial R/E crash in the mid-80's. At about the same time we wanted to build 20 miles of road which required eminent domain acquisition of a number of homes. You can see the trouble as one home was owned outright and suffered "no loss" at "market value" while the neighbor held a mortgage 40% larger than MV.

But yeah! While banksters at the top of their game collect their last few "performance bonuses" and retire to gated compounds to live in luxury and pass on a family fortune -- estate tax free -- if they have their way, millions of working Americans who did nothing worse than try to acquire a home for themselves and family will have their slim assets wiped out with often no chance to recover. The echoes of this mess will resound for decades.

Lastly I believe we've reached a point of structural unemployment, and what appears an irreversible trend toward the rich becoming richer to the point of ending the Monopoly game. Democracy should govern capitalism in a manner to provide for the general welfare of our people AND steer scarce resources toward their highest and most productive use. A barely concealed Ponzi is hardly "capitalism".

jade jewelry

Nice post. Best regards.

Christa Laser

Judge Posner,
I just have to tell you how much I have enjoyed reading your posts on this blog and your legal articles and opinions. It is not related to this post, but I wanted to express my appreciation. My law professors Johnathan Turley and Lawrence Cunningham at GW introduced me to your law and economics approach in 1L year, and I have been following your work ever since. Thank you for, in every written work, incorporating the entirety of your experience thoughtfully and carefully into your analysis, yet explaining that thought process directly and clearly enough for young students to understand.


I like Jack logic. Problem is American not spending enough. Problem is American spend already 5-10 more than Chinese but not enough. American economist say Chinese do not want spend, Chinese not like nice car nice house!, only American like!, but American must like more, so problem, big economic problem, American peoples spending 5 time more than average world but not enough – American comical! American have many Jack logic, American arrived from Chinese soon.

Sure Chinese like spend as much as American but Chinese not produce as much as American, Chinese not good much yet produce high value difficult new product, that reason Chinese can not buy, not that Chinese have no demand.

All country can consume only equal to produce. Maby consume different product than consume but in end production value=consumption value just like energy maintenance principle of Physics. American too always do that. Look America just consume only small 5% more than produce for 20 year (ratio Trade Deficit/GDP = 5%) and see now big deficit problem. Country who produce can consume same. Country that produce find customer somewhere in 6 billion earth. American problem not no consume. American problem become like Europe produce almost same value like 1-2-5 year before. American now become more lazy American think very difficult produce thing better from other peoples. American want relax like European. American problem is want life 5 time better than average world but American want to produce same thing produced 1-2-5 year before. Not better product not cheaper product same product but more pay. Now Chinese learn produce same. How American keep above average living with average American production? American no need college make car like person 40 years before but want pay 10 more than Chinese. Chinese can do that now. So American desperate so American now look around and take money from Steve Jobs, young Steve Jobs go to beach, American iPhone end like American car. Come Samsung iPhone then come Chinese iPhone. If American want live better than Chinese American have produce more than Chinese. Even Chinese school boy understand that, but American economist still think all American become rich with magic and American people more and more fool every day, more fool than Chinese boy.

America loosing number 1. Going down… Good thing Chinese take some ideas from America before American go down… America show method, now American want other method, America go down. America quickly like Europe. Chinese too many. American become same with Chinese, American go under water. Chinese take American idea from old book, American take Mao Zedong idea from Chinese. People of world 30 year in future laugh at American fool.


Assang: Having spent some time in postwar Korea, I'm very supportive of populations trying to haul themselves up by their bootstraps, and well aware of how difficult it is.

Perhaps, however you focus too closely on GDP and GDP growth rates. Consider, China, like the US in a much earlier time, is adding to its GDP by rapidly building much needed infrastructure from roads to schools to power plants; things we built decades ago.

It's somewhat similar in the private sector as the AVERAGE age of our autos is something over seven years and ascending, with many being 15 - 20 years old. One reason auto sales and related GDP has halved in recent years; they are TOO good and can handle the 200,000 miles many put on them in our large nation of often long commutes.

Same with housing; while I don't know the average age across the nation but in my little corner of Anchorage, a fairly new town, homes average nearly 40 years old. We only "need" to build enough to keep up with pop growth and replacement -- about 700,000/year AFTER we work through the overhang of inventory.

As for things looking "bleak" in the US? Yeah, we're not too tolerant of high unemployment rates and likely not satisfied with 2% GDP growth rates....... but! as dire as things seem we still have a $14 trillion GDP that is somewhat larger than the year before and the year before that.


China's GDP is something like $3.5 billion? this source only shows 2006 and in purchasing parity is likely higher, But! say China is able to maintain its torrid (and somewhat disruptive) 8% growth rate it will double to $7 trillion in 9 years, and perhaps to $14 trillion in 18 years.......... the GDP we'd have if we had NO growth, which will have to be spread among your 1.3 billion or more hard working folks.

At 3% growth the US will require 24 years to double its high GDP and one hopes, its per capita incomes. But that doubling brings the US to $24 trillion GDP and an average income of $100,000.

Concern is! if both grow to a combined GDP of over $40 billion along with India, Africa and others one DOES wonder what our kids will do for basic resources and ............about the resulting pollution.

As for your inability to consume "so much" I think our new President is doing what he can to help you guys. It's not good for you to work so hard and export so much that you've little to consume at home. Obama in a sense gives you a warning that the US can NOT absorb all the exports of the world........ which does bring to mind the question of how you plan to quadruple your GDP in 18 years? And especially so if your Number One customer is "going down?"

Cheers! and a quick look at history will show it's unwise to bet against the US or underestimate its ability to adapt.


USA important customer yes going down but rest of world continue grow at 4.5%. That mean simple that other world replace USA and Europe from customer. 800 million in all USA and Europe going down but rest 5200 million of all peoples still grow 5-6% (so average remain 4% whole world, only USA and Europe go down many more peoples going up, like 2009 and 2010, USA and Europe go down but whole world go up, American forget how many peoples all world have).

All Chinese best dream become only 50% rich as American. Then China economy two time bigger than USA. Then China look at USA like USA China today. American then fight Indian the #2 position and Indian win again because like very many Chinese also very many Indian.

American believe magical power always make USA survive number 1. American same DNA. American lucky, American free for 200 year, now forget all and change opinion and want more like old idea of Mao Zedong and Hugo Chavez. You take all Mao Zedong book idea thank you very much. All the peoples laugh at American fool after 30 year. That why USA going down. When Chinese become richer and China continue not very free, he move to other country if other country let him make more money and live like American. But when time arrive I think USA average not very good in 20 year.

But many peoples in USA only hypocricy. When speak to other American say he want money of Steve Jobs. When speak to Chinese and other poor peoples say the poor peoples bring down his good life so you poor no worth exist, you too bad was born, you make no more child. I see many peoples poor, happy born. But average American however always very much richer, complain because Steve Jobs have more money. You make Steve Jobs go down however Chinese must find new customers more sooner because without Steve Jobs you very poor you cannot buy more, you make nothing for exchange. American without Steve Jobs stay same next year American have no better life next year American unhappy, no place to go. Chinese poor happy, every year better. Look European richer and have no dream. Chinese poor grow, happy, every year better. American arrogant think poor people always unhappy but Chinese happy was born – thank you very much western peoples - and all new year better than year before.

Aussie pokies lover

This is definitely a thought provoking post.

According to me, unemployment diminishes people and leisure enlarges them. Thus, if things are going in this direction there is definitely a scope of improvement in the system.


Jack:"The catch here is that GDP is what is produced and SOLD. Given flat and declining wages for those still working and high unemployment we're a DEMAND starved economy"

It's clear in Jack's post where he is coming from. He subscribes to plain-and-simple IS/LM aggregate-demand-management Old Keynesian macroeconomics. Old Keynesians appear to think that "demand deficiency" is self-evident given the currently-high unemployment rate. Unfortunately, it is hard to find the sources of our current problems in sticky-price and sticky-wage mechanics. Do we have a large number of people searching for work because firms are refusing to drop wages or prices? I don't think so, and I would welcome specific evidence that this is what is going on.

Now, Old Keynesians were never very specific about the timing of deficits and surpluses. In the IS/LM model, there is no future, no sovereign default, and no intertemporal government budget constraint. When do we stop worrying about the output gap and start worrying about the burden of the government debt and the possibility of sovereign default? An IS/LM model certainly isn't going to tell us.


Anon: I'm not sure what you are asking or exactly what case you're trying to make.

While, like most here, I've not the computing power nor research assistants to provide "specific evidence" for anything I posit.

Looking back, however, I like W. Buffets comment of "It's not til the tide goes out that you can see who's swimming naked". In the last 20 years much of the "tide" that lifted mostly yachts and few boats was A. a stock market boom and B. a housing boom.

These events held in common that of being "2nd job" or as is more commonly said about equity out refi's or housing swaps that accomplish the same thing, "the ATM" that allowed consumer demand to continue. What these secondary sources of "income" (borrowing) did was to mask much of the effect of 30 years of wage stagnation.

Yes, it's the fact of, by far, most of us deriving no wage benefit from the doubling of productivity over those years. The math should be pretty simple: Flat wages in an economy 70% dependent on consumer DEMAND equals a Flat economy. Poke another hole it it, say two thirds of those once building homes or riding the financial aspects of it being either completely unemployed or dislocated and you've a prescription for a deflating economy.

Perhaps you're puzzled that sagging DEMAND is not lowering overall prices? Trouble is most of what we spend most of our stagnant incomes on are victims of cost push "inflation". For example all the elements that go into a new housing development have about a 10% margin........ risky 10% for a land subdivider and a similarly risky 10% for the home builder. Each of these operations is affected by a doubling of energy costs.

Today in many, perhaps most areas the "10%" is gone, eaten up by interest and other holding costs. Further lowering of price to meet the MUCH lower demand curve? or to compete with recycled foreclosures? that would mean a strapped or broke homebuilder having to bring a check to closing. Result? sticky pricing with bankruptcy the predictable "out". Watch for it in theaters near you.

I don't think one need be a "Keynesian" at all be it "old" or new, to determine that this MESS is due to a world-wide lack of demand, much of which had been masked by the corrupt, fraudulent actions of the "financial" industry.

More? "Old" economists know what some (Chicago dudes?) don't like to discuss; ie that those of the topmost incomes have FAR lower propensity to spend their income or a marginal dollar that might come their way from and (unaffordable) tax cut. Thus...... it follows that as a higher and higher percentage of our total income accrues to the topmost tiers --- aggregate spending (demand) will, and has fallen.

There are basically three ways to "fix it" or have "it" heal itself each of which appears to be as likely as the proverbial snowball's chances in Hell:

A. A miraculously robust rate of growth, north of 3.5% and a long wait.

B. One means or another of knocking overripened fruit from the topmost branches down to those whose many wants and needs WOULD translate into DEMAND should they have a buck to spare.

C. Substantial public sector spending and subsidies that will help our economy make the long delayed transition from such dependency on foreign oil as to be a national security concern, and tackling the $2 trillion of infrastructure maintenance and upgrades.

D....... and my prescription is a combination of all above with public spending both spurring demand in the short run, a less steep distribution of income (as we had during most of our post-WWII years) unleashing the spending power of the M/C and lower, and finally the much improved roads, rail, bridges, schools, smoothing our ability to do some business in the future.

Do you have any suggestions for getting out of this mess? If it's "continue tax breaks for those upwards of $250,000" just skip it as I've heard that one ad nauseum, and it doesn't get better with time nor frequency of application.


Jack, thank you for demonstrating how wealthier people simply leave any money that they do not spend unused, by stashing it somehow away or give it to some bank to stash away, investment firm to stash away, company to stash away or government (well, I guess, the only case the money actually ends up in productive use).

Here all along I naively thought wealthier people actually invested any money they do not spend …


M. You're not so "naive" and often the upper income groups and those of family fortunes have invested in our productive facilities. Handy thing too! when we're running at capacity with full employment, working overtime and the like and new plant and more efficient equipment is in demand.

Often such eras of heavy demand for capital coincide with fairly high interest rates that provide incentive for risking capital. Lately...... be it the stock market, bonds or bank interest such doesn't seem the case and has not for quite a while.

Perhaps the lack of investment opps in productive sectors is a partial explanation for the kiting of residential and commercial R/E......... and now "investing" in commodities -- once thought of as a zero sum game to be played by savvy traders?

"Funny thing" in times past business pundits used to quote factory utilization percentages which I've seen as high as 95% but it's rare these days. Perhaps more complex ,what with the "info" and "service sector" industries eclipsing mfg, and with what appears infinite capacity --- over there.

But.... whatever the wealthier folk are doing it's not restoring demand and w/o demand there will be few investment opps.

Do you see many rewarding investment opps? In the last depression ad agencies and the craft of "creating demand" did well, but as I stroll through our stores and see the effort expended it looks as though they've got all the flags flying and still not making the numbers.

Do you have some suggestions for getting out of this mess?

cheap jordans

OK. Point taken. But there are so many other things that are involved with happiness. things like, job satisfaction, achieving your goals, respect and family relationships.

Cheap Louis Vuitton

They hold a great expectation that their next generation will explore a full career potential and lead a more prosperous and successful life than their own

Cheap UGG Boots

They hold a great expectation that their next generation will explore a full career potential and lead a more prosperous and successful life than their own.


Perhaps the lack of investment opps in productive sectors is a partial explanation for the kiting of residential and commercial R/E......... and now "investing" in commodities -- once thought of as a zero sum game to be played by savvy traders?

ulisse di bartolomei

The Fiat patent fraud. About the Fiat hybrids: the technology double clutch with electric motor between has been stolen by a patent that Fiat Company has never wanted to purchase, but only shamelessly to copy. This hybrid solution will be the basic technology with Chrysler's electric and hybrid car program. Please give a look in my blog where the "vitality" and boldness of the Fiat planners it appears in all of evidence: http://dualsymbioticelectromechanicalengine.blogspot.com/
If the industries can afford unpunished to copy the ideas and defending it need very expensive trial, to which target need the patents? How to defend the rights of private inventors? How our young people can find intellectual courage if the economic potentates crush the rights of the single ones? Whoever is about to ask for a patent or wants to propose a proper patent to a big firm I suggest to give a look to my experience with the Fiat, to get able to operate with better adroitness. Thanks and good time to everybody. Ulisse Di Bartolomei (Not spam! Please don’t stop this comment)

Joshua Norman

We could reduce unemployment by deporting all the illegal aliens, enforcing & strengthening the immigration laws already on the books & rationlizing our green card & immigration VISA programs, as well as limiting the number of legal immigrants permitted to enter the US.

Nike Air Max 90

It's really a very good article,I learn so much thing from it,thanks.You are really a nice person.

The comments to this entry are closed.

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