Gary Becker on Whether Our Goose Is Cooked

Gary Becker, a Nobel Prize-winning economist with creative views on economics and a wealth of experience in international economies, thinks we'll come through this crisis in reasonable shape. He says global capitalism will more or less continue on its course, rebounding from recession in a reasonably short time. He does not expect a widespread ratcheting up of government regulation, nor does he think the government will stay in the business of owning banks. But we won't know this for sure for another year or so, he says in his post "Is the Goose that Laid the Golden Eggs Severely Wounded?
Becker notes that "American recessions since 1959 have been so mild that in no year did real GDP fall by much more than 1 percent, and yearly average unemployment rates peaked at about 10 percent." He expects something along these lines, saying that "I do not expect the current crisis to develop into a major depression." (10 percent unemployment is a number some of the more bearish forecasters have thrown out as if to frighten us. I grew up in the Rust Belt -- 10 percent unemployment for a few months isn't a crisis. Try 20 percent unemployment for a few years. That's really unpleasant.)

Becker does include a hedge. If he's wrong, and there is steep, long depression? "The retreat from capitalism and globalization could be severe, as happened during the Great Depression," he writes. That would be extremely bad for entrepreneurial businesses and the economy at large, he expects.

In fact, a retreat from capitalism isn't so far-fetched, writes Richard Posner, who shares a blog with Becker. Posner notes that "Very few people are committed in an emotional sense to a free-market ideology; if the free market seems not to be working, the population and its political representatives will cast about for an alternative."

Schumpeter, revered for his idea of creative destruction, ultimately thought capitalism would destroy itself, and it's hard not to wonder a bit if the current crisis is a sign of that. Not so fast, writes Posner. Markets fail all the time, and this is just another failure that we are likely to get through.

Complacency on the part of some economists and politicians about the efficiency of the market system, and specifically an exaggerated belief in the robustness of financial markets, have created the impression that the current crisis is a crisis of capitalism rather than just another demonstration of the radical imperfection of human institutions--including the market.