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The Great Repression: The Crisis of Richard Posner

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Panics cause strange behavior. This is as true of financial markets as it is of the public intellectuals who write about them.

Take the case of Richard Posner. Since the crash of 2008, Judge Posner, who sits on the Seventh Circuit Court of Appeals in Chicago and teaches at the University of Chicago Law School, has written scores of articles and blogs -- and two books -- on the financial crisis, including this spring's The Crisis of Capitalist Democracy. Throughout, Judge Posner surprised many by insisting that we are in a depression caused by bad government policies that were, in turn, based on bad economics. Only heavy government spending can get us out.

Because Posner is a prominent public intellectual, what he says about the financial crisis gets attention. Views have been mixed. Some did not like that he broke with his conservative past, embracing large stimulus packages. Others viewed this as a refreshing change of heart.

Either way, critics tend to ignore a basic flaw in Posner's work here, which is that he fails to mention his role -- and that of legal academics generally -- in creating and popularizing the policies he now criticizes. Posner has, in short, produced a "culpa" without a "mea."

To understand his role in the financial crisis, it is necessary to understand something about Law and Economics, an academic movement of which Posner has (correctly) claimed himself to be a founder. Law and Economics is essentially free-market economics brought to law school.

Posner's leading textbook on the subject, Economic Analysis of Law, was predictably skeptical of financial regulation. Writing before the financial crisis, he argued that "banking regulations go far beyond what a private creditor would insist upon in the interest of safety and seem . . . dubious." Securities laws were equally ill conceived because the market would do a better job than Uncle Sam. "Capital markets are," he claimed, "competitive, and competitive markets generate information about the products sold."

It is difficult to overstate the influence of this movement, which began at the University of Chicago in the late 1950s, and blossomed during Posner's tenure there. According to a 1993 study (by Posner), by the late 1980s, "the influence of [Law and E]conomics . . . exceeded that of any other interdisciplinary or untraditional approach to law." Funded by the conservative Olin Foundation, Law and Economics research centers sprouted at law schools around the nation, influencing scores of law professors who shaped the views of thousands of lawyers, many of whom went on to become policy makers and regulators. Its adherents or sympathizers include former attorneys general (Edward Levi), solicitors general (Robert Bork), and U.S. Supreme Court Justices (Antonin Scalia).

Law and Economics was thus an important link in the intellectual chain that led to the deregulatory fervor of the past 30 years. Yet, Posner omits this vital piece of the story -- and his starring role in it -- from his major accounts of the financial crisis. Except for a footnote which acknowledges that "some of" his work "succumbed to [the] fallacy" that markets are axiomatically superior to regulation, it as though neither he nor the Law and Economics movement ever existed. The financial crisis is, according to Posner, the fault of virtually everyone except Law and Economics.

With re-regulation on the horizon, Posner may recognize that the next real fight is about intellectual liability for the crisis. Because Law and Economics played a role in building a system he now views as flawed, he needs to tell a story that insulates (and thus exonerates) his movement. His version -- which we can call the Great Repression -- would set the rhetorical parameters of the discussion going forward. That discussion blames the government and the economists, but not the lawyers and legal academics -- who were often both ardent advocates for, and implementers of, deregulation.

There is nothing wrong with changing your mind, and perhaps Judge Posner should be lauded for doing so publicly. But breaking with the past is one thing. Burying it is another.

"I have been moved to criticize a number of economists," he explains in The Crisis (his newest work), "because there has been so little self-criticism by economists -- a bad sign." "Instead," he notes without a trace of irony, "we have seen defensiveness."

No defensiveness from Judge Posner, however. Which may make sense: Why defend a crime that was, in his account, never committed?

Panic or no, Posner knows that the best defense is a good offense.