Tuesday, August 30, 2011

Prozac for Posner

There's no doubt Richard Posner is brilliant: lawyer, supreme court clerk (to Brennan), author, law professor, shade-tree economist, blogger, and Federal appeals court judge. Excluding the list of judicial opinions he authored, his resume is 47 pages.

Early in his career, Posner did more to develop the discipline of law and economics than anyone except possibly Ronald Coase. Posner's first book, The Economic Analysis of Law (now in its eighth edition), influenced my thinking enormously.

For most of his career, Posner was an unabashed conservative; my favorite case quote:
But there is no constitutional right to be protected by the state against being murdered by criminals or madmen. It is monstrous if the state fails to protect its residents against such predators but it does not violate the due process clause of the Fourteenth Amendment or, we suppose, any other provision of the Constitution. The Constitution is a charter of negative liberties; it tells the state to let people alone; it does not require the federal government or the state to provide services, even so elementary a service as maintaining law and order. Bowers v. DeVito, 686 F.2d 616 (7th Cir. 1982).
But, starting around the turn of the century, he's been most identified with "pragmatism":
Posner urges that political and legal decision-makers should be guided by what he calls everyday pragmatism rather than worry about abstract moral considerations (chs. 1-2). He links this conception of pragmatic government to an unromantic theory of democracy that rejects more demanding and idealistic views currently embraced by many political theorists and legal scholars. In contrast to deliberative democracy and other theories that require a high level of disinterested political involvement on the part of citizens, Posner follows Joseph Schumpeter in defending a theory of democracy limited to a competitive power struggle among members of a political elite for the electoral support of the masses. He further argues that judicial review should be based on a combination of pragmatism and adherence to his limited conception of democracy, rather than sticking closely to formalist theories of adjudication, which demand strict adherence to the text of the Constitution, legal precedent, or the original intent of the framers (chs. 6-10).
As a result, Posner's book on terrorism post 9/11 is surprisingly light on law and the Constitution, substituting his assessment of what might work best in practice. Similarly, though he agreed with the outcome of Bush v. Gore, 531 U.S. 98 (2000), Posner was less concerned with the law and more focused on the practical necessity of reaching a decision -- any decision -- so as to avoid a Constitutional and political crisis. Needless to say, conservatives -- especially conservative lawyers -- find some of Posner's newer views legally unsound and economically inefficient.

Posner's recent books address the financial meltdown. In The Crisis of Capitalist Democracy, Posner critiques Adam Smith's invisible hand and financial deregulation. His latest, A Failure of Capitalism, is more the problem's precis than recommend remedies.

I haven't read the latter book, but Posner's recent piece in The New Republic gives a flavor:
If the notion that we are merely living through the aftereffects of a mere "recession" that ended in 2009 sounds somewhat ridiculous, that’s because it is. If we were being honest with ourselves, we would call this a depression. That would certainly better convey both the severity of our problems, and the fact that those problems have no evident solutions.

The American economy currently has both a short-term problem and a long-term problem. The short-term problem is that the economy is depressed; it is growing more slowly than the population, with the result that per capita income is declining. The high rate of un- and underemployment is a factor, but is itself the product of other factors, having mainly to do with the reluctance of over-indebted consumers (over-indebted in major part because of loss of equity in their houses, the major source of household wealth) to spend, the reluctance of the impaired banking industry to make risky loans, and the reluctance of businesses to invest and to hire, which is due in part to weak consumer spending and in part to profound uncertainty about the nation’s economic future.

The roots of this catastrophic situations lie primarily, I think, in the incompetent economic management of the Bush administration and the Federal Reserve. The persistence of the depression, however, is due in part at least to surprising failures of the Obama administration--poor leadership, poor management, the sponsorship of incomprehensibly complex health care and financial regulation laws that have created widespread uncertainty that has discouraged consumption and investment, and the inability to explain the nature of the economy’s problems to the general public. These failures caused the stimulus enacted in February 2009 to be botched in both in its design and its administration, resulting in the discrediting of deficit spending as a response to depression.

So what can be done now? Probably nothing. Anything that involves spending, such as a new stimulus program, would come too late to be effective. Measures that would not involve spending, such as devaluing the currency (which the Federal Reserve could do by buying a great many bonds, thus flooding the world with dollars), could stimulate our exports and hence production and hence employment and reduce imports (which would further help domestic production), but they are too risky given the interdependence of our economy and the economies of the rest of the world.
Posner's less worried about entitlements -- if the economy begins to grow again, he suggests some tinkering, some of which I support -- that would postpone the crisis in "mandatory" spending.

It's startling that one of America's most prolific public intellectuals is so pessimistic that Posner concludes:
The result is a quandary. I don’t see a way out of it. I hope others do.
Twice I wrote posts suggesting how to close the Federal budget deficit--but neither got much traction. By questioning capitalism and the preference for markets over regulation, Posner's raised a far broader issue. So, I spent no more than an hour formulating ten things I would do as Platonic philosopher king. One caveat--given my job, I skipped the FCC and Commerce Department.

1) Repeal Obamacare; substitute ending the tax break for employer health insurance and authorizing interstate health insurance competition. I'm on the fence as to whether stay revenue neutral by cutting income taxes.

2) End Medicare; transfer all the funds to Medicaid. America is wealthy enough to subsidize the poor--there's no reason, however, why we should subsidize people just because they're old. Cut back unemployment insurance to a year--it will increase employment. Trim Federal minimum wage back to 2007-08 levels--ditto.

3) Privatize Social Security for those under, say, 50. Means-test it for the over-fifty crowd. Replace it with a 401k-like scheme, with some constrains on qualified investments, avoiding among other potential calamities, the "Enron problem." Older Americans have too little time to build sufficient capital to privatize now--but they'll have to go "COLA-turkey."

4) Contrary to Posner, keep driving the dollar down, to boost exports--besides, with interest rates so low, debt is a bargain. But avoid inflation.

5) Eliminate the Departments of Education, HUD (auction off all existing public housing), Agriculture (there's about two full-time farmers for every Agriculture department employee -- page 123 -- making the DoA DOA would go a long way toward funding continued farm price supports, if any), NASA, the pointless Post Office, and HHS (preserve the FDA).

6) Quadruple legal immigration quotas -- one quarter filled by lottery, the remainder by reverse auction. Deport illegals.

7) Three Amendments to the Constitution (a) capping state-law tort punatives at 3x actual damages (the Supreme Court partially Federalized state law tort remedies in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996)); (b) not a balanced budget amendment (sorry Congressperson Bachmann), but a modified line-item veto where Congress has to approve strike-outs (NJ has something similar); (c) modify the first sentence of the first section of Amendment 14, to read as follows (additions in bold):
All persons born in the United States to citizens or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.
As currently in effect, the provision encourages "chained" immigration and "birth tourism," because the offspring of illegal immigrants born here automatically are citizens.

8) Defense: Give up on new fighter jets (especially the Marines version of the F-35)--refurbish avionics on the existing ones--we can retain overall air supremacy with avionics upgrades for around a decade. Seriously think of withdrawing from Afghanistan, at least if President Hamid Karzai keeps equivocating about whether he wants our troops gone or protecting his country and training his military and police.

9) Tax simplification: either a flat tax, or three brackets (as the Bowles Commission recommended), with only two deductions: home mortgage and charity (too disruptive to end given the long history). Capital gains rates remain less than ordinary income rates--President Obama bragged that his stimulus package would boost investment, jobs and growth; surely the should apply the same logic to a policy that also stimulates investment and boosts jobs and growth. Lower the corporate tax rate, but eliminate most of the "choosing winners and losers" deductions.

10) For everything else, return to the FY 2005 spending levels.

There, Judge Posner--feeling any better now? Comments?

(via reader Doug)

1 comment:

Whitehall said...

Disagree on the immigration scheme since those "high skill" immigrants are the ones that compete against American middle class citizens - guys like me! Yes, stop illegals and agree about revising "birth citizenship."

Agree on killing Obamacare and making a national market.

Social security and Medicare of course have to be restructured but at 60, I can't change course.

Home mortgage interest deduction needs to go too. However, landlords will still have it as a cost of business so renting will be advantaged.