Last Updated Oct 27, 2008 11:00 PM EDT
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.So while neither Becker nor Posner can see the future clearly, and both see possibilities for a worst-case scenario, it would be a big surprise to them. Most of the economists I've spoken with over the past couple of weeks say much the same thing -- that we may face unpleasant times over the next few quarters, but we are not likely to see the kind of sustained downturn that would rip the system to shreds.