Richard Posner, one of most cited legal scholars alive, has a new post on the blog he co-writes with Nobel laureate Gary Becker . It's his take on the silver lining of economic downturns.
On the surface, it reads a bit like an ode to Phil Gramm and his ilk who scoff at our nation of whiners. It's actually more of a plain-old market defense of why it's better to go through the pain now rather than delay it for an inevitable future. He does, however, support a tax increase right now.
Take a look and let us know what you think.
Here's a brief excerpt:
A depression increases the efficiency with which both labor and capital inputs are used by business, because it creates an occasion for reducing slack.One might think that a firm that has slack in good times will have as much incentive to reduce it as it would in bad times; slack (failing to maximize profits) is an opportunity cost, which in economics has the same motivational effect as an out-of-pocket expense. But firms are organizations, and organizations experience agency costs, which are more difficult to control in good times than in bad. If a firm's profits are growing, it is easier for the firm's executives to skim some of the profits, pocketing them in the form of excessive compensation or perquisites, than when the firm is shrinking. In the former case, stockholders will be doing well, so the pressure they exert through the board of directors to minimize the extraction of rents by executives and other employees will be less intense than when the firm is at risk of collapse. When the depression ends, the firm will have lower average costs, though they will drift upwards as the firm re-grows.
Daniel Costello
4:17 PM ET
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11-11-2008
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Now that an automaker bailout seems to be gathering serious steam in Washington, this seems to be a good time to get all sorts of opinions about whether taxpayers will benefit under a Detroit handout.
It's not easy getting good numbers on wages in the auto industry. University of Michigan professor Mark Perry has tried to come up with some. Here's his estimate of the average hourly compensation for employees at the Big Three, which includes hourly pay plus benefits. GM, Ford and Chrysler: $73.20; Toyota: $48; workers in other industries: $28-47.
Perry believes it's better if we let the market take its course and allow foreign car makers who have an industry price advantage to essentially take control of the global auto market.
Here's a vote for the other side. Their take: the auto industry has such a huge impact on the overall economy due to the large number of actors involved in producing, selling and maintaining a car that there is no other choice but to help the U.S. auto industry get off life support.
Daniel Costello
3:49 PM ET
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11-11-2008
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The long-maligned U.S. dollar has made some of its sharpest gains against foreign currencies in decades as a global economic slowdown is spurring demand for the greenback.
Here's an interesting brief on why it's happening and why a strong dollar is likely here for a while.
Daniel Costello
10:19 AM ET
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11-11-2008
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