Wednesday, May 27, 2009

Judge Posner Slaps Greenspan Around

Sounds right to me. Posner is an ego-maniac, but he's a smart one and he knows economics. And as for the "infallible" Mr. Greenspan, he has a legacy to defend. You decide.
And as for the title of Judge Posner's new book, here is an excert regarding his choice of title:

There is a sense, in short (turning to the second concern that I flagged), that capitalism has failed us, and we need something different, and that the title of my book signals support for that view. But that is not my intention. "Capitalism" is not a synonym for free markets. Capitalism is a complex economic system with many moving parts, and buying and selling and investing and borrowing and other activities carried on in private markets are only some of those moving parts. Others include a system of laws for protecting property and facilitating transactions, institutions for enforcing those laws, and regulations of markets designed to align private incentives with the goal of achieving widespread prosperity. One of the key regulatory institutions is a central bank, which in the United States is the Federal Reserve.

The part of capitalism that consists of a private banking system is unstable and can fail and can bring down much of the rest of the economy with it, and that is one reason a capitalist system cannot consist just of free markets. A central bank has a key role to play in preventing the banking system from failing; so do the other government agencies involved in the regulation of banking. These "moving parts" failed crucially in their responsibility for preventing the banking system from failing. And for reasons that I will explain in subsequent entries in this series, the blame for the depression should be allotted primarily on the Federal Reserve, on other parts of government (including the Treasury Department and Congress), and on the economics profession, rather than on the banks.

As a utilitarian, Posner favors makets, to be certain, but he is also not an ideologue. No one's perfect...