Free-market economist changes tune

Steve Haycox

Judge Richard Posner is an extraordinary man with an intellect of a very high order: precise, systematic, sophisticated and penetrating. From his seat on the U.S. Court of Appeals in Chicago, he has taken significant legal positions on a number of important issues, including antitrust, privacy, abortion and torture. But it is his prolixity as an author that most captures wide attention. He has published nearly 40 books, on jurisprudence and legal philosophy, but also on plagiarism, suicide, literature and especially economics. A widely respected judge, he is the most-cited legal scholar ever.

Posner also teaches at the University of Chicago Law School. Chicago has long been identified as an intellectual engine of free-market economics. The Nobel laureate Milton Friedman, probably the most influential economist of the late 20th century, taught in the Chicago School of Economics, and shaped economics research and study across the nation. During the 1980s and 1990s, Posner was a darling of free-market economists and enthusiasts for his books and articles celebrating deregulation and risk, and trouncing government intervention intended to mitigate inequality. With Friedman, he was fond of saying that a society that placed equality ahead of freedom would end up with neither.

It came as a rather rude shock to lots of free marketers when, in the wake of the "Great Recession" of 2008-09, Posner published two serious books in which he wrote that he'd gotten it all quite wrong, and along with him the Friedman school. In "The Failure of Capitalism: The Crisis of '08 and the Descent into Depression" (2009) and "The Crisis of Capitalist Democracy" (2010), Posner argues that a modern capitalist economy with a modern financial system, like that of the U.S., cannot police itself. It has intrinsic flaws that make it self-destructing. As summarized by Nobel economist Robert Solow, these include privileged information for the largest and best-organized market players, the creation of complex, nontransparent securities few can understand, and manipulation of the market by large, informed operators who escape the assumed blindness of the laws of supply and demand. To function efficiently and responsibly, Posner insists, a modern economy needs effective, comprehensive government regulation.

In his 2010 book, Posner addresses the problems of equity that, in his earlier books, he blithely assumed would take care of themselves, that the "trickling down" of the economic prosperity accruing to the rich would "lift all boats," as the wealthy invested in enterprises that created jobs and opportunity for others. Posner concedes that this did not work, that instead, the rich simply got richer, and the poor got poorer.

Many free marketers like to think that the rich are rich because they made better choices than the poor, who could have acted differently than they did, but threw caution and prudence to the winds and had a jolly good time while frittering away their limited resources. This reasoning works only if one ignores the social context in which real people are enculturated and live their day-to-day lives. Raised in a home climate of responsibility, punctuality and rationality, with expectations of rising opportunity, there's every reason to anticipate personal, professional and material success. But if these things are absent -- if they've been absent for one's parents, as well -- and if limited capability, limited nurturing and perennial frustration have destroyed hope, there's little reason to imagine that such people could have acted other than they have.

This is what countless minority families and individuals have experienced in this country, and what millions of American schoolchildren grow up with, despite the best intentions of our educational establishment to "serve all students." And in the "Great Recession," the clammy, hungry hand of poverty has reached out of the ghetto and the trailer park into the middle class, dragging down many hard-working Americans who can't be blamed that they don't understand how the wealthy have profited at their expense, from their ignorance and vulnerability.

In his "The Story of American Freedom," historian Eric Foner writes that in the Progressive Era, Americans adopted the democratic ideal of economic prosperity for all. Richard Posner now suggests that without government intervention, free-market economics creates prosperity mainly for the few.

Steve Haycox is a professor of history at the University of Alaska Anchorage.

Steve Haycox