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The Crisis of Capitalist Democracy

May 9, 2010

Ever a man for all crises, Judge Richard Posner has yet another new book out, this time on the failure of representative democracy to properly handle the storm and stress of the current economic malaise. I haven’t read it, but Niall Ferguson’s review in this Sunday’s NYTimes piqued my interest:

For Posner, the American system of government is “cumbersome, clotted, competence- challenged, even rather shady.” He confesses himself “perplexed by how government . . . has managed to escape most of the blame for our current economic state.” Well, maybe because his fellow Keynesians have relentlessly lauded government as the solution…

Posner makes it clear that he understands the risks the United States now faces as the crisis of private finance continues its metamorphosis into a crisis of public finance: an exploding debt relative to gross domestic product; larger risk premiums as investors prepare for higher inflation or a weaker dollar; rising interest rates; a greater share of tax revenues going for interest payments; a diminishing share of resources available for national security as opposed to Social Security. “As an economic power,” Posner concludes, “we may go the way of the British Empire.” Indeed. It seems not to have struck the judge that British decline and the rise of Keynesianism went hand in hand.

Posner’s born again Keynesianism always seemed a bit of a put on to me. I’ll have to read the book. It’s interesting to see him investigate the tensions between capitalism and democracy. But in his prescriptions, it sounds like he’s all theory, while willfully disregarding the practice he himself condemns. He diagnoses a serious problem inherent in the very fabric of U.S. governance–sluggishness, demagoguery, ineffective policy–but then assumes those problems away in his suggested remedies. Stimulus spending, bailouts–this is chum in the water for political sharks. How could he not see these two go hand in hand?

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