The Economist Interviews Richard Posner

The Economist has interviewed Richard Posner. Posner has attracted my attention (and the attention of many others) for being economically conservative out of the Chicago School but acknowledging that deregulation has gone too far and is partly responsible for the current economic crisis. Posner has also been very critical of the anti-intellectualism of the Republican Party. He sees the country moving to the left under Obama as leaving room for a more rational Republican agenda which can move back from the extreme right:

DIA: In writing about the intellectual decline of conservatism you say that the movement has “so far succeeded in shifting the centre of American politics and social thought that it can rest, for at least a little while, on its laurels.” Are you at all afraid that, while conservatives rest, Barack Obama will have shifted the centre of American politics back to the left?

Mr Posner: That may happen, but if so it will be good for conservatism! President Clinton in effect co-opted the conservative agenda; I have often referred to him as the consolidator of the Reagan revolution. His economic policies were conservative, but he also supported capital punishment and welfare reform, though obviously the control of Congress by the Republicans was a big factor in the latter. His judicial appointments were generally of moderates, and the two liberals whom he appointed to the Supreme Court were less liberal than the justices they replaced. If the current administration moves the country left, conservatives will be able to campaign from a position of responsible conservatism, rather than pushing a conservative agenda beyond reasonable bounds in order to differentiate conservatism from the centrist policies of moderate Democrats.

Posner considers Obama’s handling of the economic crisis to be a mixed bag, giving him far more credibility than conservatives who attack all aspects of Obama’s actions without being able to offer any reasonable alternatives of their own:

DIA: What do you think of the Obama administration’s handling of the crisis?

Mr Posner: A mixed bag, but given political constraints and the inherent awkwardness of a presidential transition in the midst of a crisis, probably as well as could be expected. I think we needed the Keynesian stimulus (the $787 billion in tax cuts, benefits increases, and public works), although it could have been better designed; and the stress tests, a distant cousin of FDR’s bank holiday (during which bank examiners examined the books of the banks and allowed only those adjudged solvent to reopen), apparently have assisted the major banks to obtain additional capital. Above all, Mr Obama has radiated confidence, competence, and control, and those are important qualities in a president who is trying to allay public anxieties. For those anxieties stimulate hoarding (by banks as well as by individuals), which reduces spending, which reduces production, which increases unemployment, which reduces incomes, which reduces spending further—the downward spiral that it is imperative to arrest. But the harassment of business over compensation policies, and the impending federal takeover of General Motors, are negatives: they increase the uncertainty of the business environment, which dampens the incentive to invest, and shift the balance between government and business in the management of economic activity too far in favour of the government.

Posner also refers to the opposition by conservatives to closing Guantanamo Bay and moving prisoners to federal prisons in the United States  to be an example of “idiot conservatism.”  Posner also does not go along with the conservative outrage over considering empathy in a Supreme Court nominee:

I think empathy, which means the ability to understand how other people feel, is a valid and important attribute of a judge, because his decisions affect people, often profoundly, including people who are not before the court, and he should have a sense of how they will be affected by and react to the decision, and of the motivations and circumstances that led them to act as they did in whatever dispute or incident led up to the case.

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2 Comments

  1. 1
    Christoher Skyi says:

    Some points:

    “we needed the Keynesian stimulus (the $787 billion in tax cuts)” 

    What the stimulus is fighting against is what’s called (and feared) the “paradox of thrift.”  The stimulus was “designed” (but ill-designed, as Posner says) to get us to spend. Instead, we’re NOT spending. We’re saving.  I don’t have the source, but apparently 108% of the tax cuts in the stimulus were saved, i.e., all the tax cuts/refunds were saved and then MORE was saved. 

    Yglesias explains the paradox:

    Now we’ve entered “paradox of thrift” territory. People are saving more. And the increased saving isn’t being cycled back into the economy as new investment. In part, that’s because of problems in the financial system. But in part, it’s because with short-term demand slumping so much, there’s not a lot of worthwhile investing to be doing. The economy needs someone to decide to borrow some money and start a new firm that employs these newly unemployed people. But with the volume of consumption going down so rapidly, nobody’s really in the mood to start a new business. And existing businesses are busy scaling back production, not interested in borrowing money to ramp it up. The result of this is an overall fall in the average level of income. And that means that even with the share of income being saved going up, the actual level of savings can be going down and we can truly end up in the toilet.”

    Oh, add to that — the banking system is still broken, so that’s more serious headwind to blunt the stimulus.

    The stimulus bill was widely criticized across the board, not just from the GOP.

    Even Paul Krugman has been less than sanguine about the stimlus: He has analyzed the stimulus plan as it now stands, using accepted techniques (various multipliers for various types of spending) and finds it falls well short of its objectives. Given the determination of the Obama crowd to jolt the economy into some semblance of life, this strongly suggests that towards the end of the year, more stimulus measures will be on the table, with large dollar figures attached to them.

    In short, the stimulus has failed, utterly, to stimulate, and in returned,  we’ve been handed huge national credit card bill (on top of the one GWB gave us) and now with more debt likely to be on the way.

    It’s no wonder that a few days ago (I don’t have the source) that Obama read the riot act to his team — he wants the stimulus spending $$ to go out faster/sooner because people’s confidence in him is starting to slip — and it’s not hard to understand why: unemployment has blown though the worse of team Obama’s projections, projections that were  based on doing nothing.

    “Posner considers Obama’s handling of the economic crisis to be a mixed bag, giving him far more credibility than conservatives who attack all aspects of Obama’s actions without being able to offer any reasonable alternatives of their own”

    Wrong and wrong. TARP, the stimulus plan has been attacked by conservatives because armies of highly credible people have been highly critical of team Obama’s plan as being too rash and ill-thought through.  The response of the Democrats has been, “well, it’s better than doing nothing.”

    Is it?  Is it better to go ahead not really knowing what you’re doing than doing nothing. Do you practice medicine that way? 

    I didn’t think so.

    And many Many MANY credible people have offered very good alternatives, but those were never adequately considered in the “rush to do something, anything, now.”

    Posner is correct about this:

    “Above all, Mr Obama has radiated confidence, competence, and control, and those are important qualities in a president who is trying to allay public anxieties. or those anxieties stimulate hoarding (by banks as well as by individuals), which reduces spending, which reduces production, which increases unemployment, which reduces incomes, which reduces spending further—the downward spiral that it is imperative to arrest.”

    The goal is clear, the intent is good, but it’s not good enough as last Sunday’s NYTimes article points out. Plus — look at the current economic indicators going forward. You tell me — is it working? (And could team Obama’s “fixes” ever hope to work? See World Economy Falling Faster Than in 1929-1930, More thoughts on the fake recovery.  The entire global system is slowly collapsing. Between not addressing, or even acknowledging real problems and making things worse, I simple don’t know what team Obama is doing, and I’m not alone)

    And going forward, the dangers grow:

    Willem Buiter Calls for Less US Stimulus, Expects Collapse in Price of Dollar Assets

    “Buiter tackles the problem from a different angle. He looks at the standing of the US in the world, economically and financially. He does not argue the Cowen angle, that deficit spending might not lead to growth. His point is different: the US is pretty close to the end of its rope, in terms of relying on the rest of the world for financing. He sees it as a no-brainer that a massive fiscal deficits, whether they are narrowly successful or not, will relatively soon (he estimates 2 to 5 years) lead to a collapse in prices of dollar denominated assets.

    Now that point of view might not seem radical; some investors have spoken for some time of the likelihood of a dollar implosion. But among respectable economists, this would have been treated as a lunatic fringe view. But Buiter makes his argument using data and recognized economic constructs.”

    If the stimulus plan as been attacked by, oh, just about everybody, TARP has been even more widely attacked and from day one.  That the “sick” banks are now despriate trying to repay the TARP funds calls the whole approach into even more question:

    See Barry Ritholtz’s post from “The Big Picture” blog:  Was the TARP a Ruse?

    See also Edward Harrison of the site Credit Writedowns:

    If you thought the bailout of too big to fail institutions was a massive gift from taxpayers to captains of Wall Street, the news that TARP funds are being repaid should confirm your beliefs.

    Here Posner hits it on the head:

    “the impending federal takeover of General Motors, are negatives: they increase the uncertainty of the business environment, which dampens the incentive to invest, and shift the balance between government and business in the management of economic activity too far in favour of the government.”

  2. 2
    Harvard University Press says:

    For those who are interested in Posner’s new book, A Failure of Capitalism, we have an excerpt from the book at: http://www.hup.harvard.edu/pdf/POSFAI_excerpt.pdf

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