There’s a certain masochistic pleasure to be had in reading critiques of economics, and the latest I picked up is a book published in 2009, Richard Posner’s [amazon_link id=”0674060393″ target=”_blank” ]A Failure of Capitalism[/amazon_link]. He deserves credit for being so clear then that there is an economic depression – I think a majority of people then were still expecting a reasonably prompt recovery rather than a lost decade. At least Posner, unlike many econo-critics, understands that macroeconomics is not the whole of economics. He points out of macroeconomics that: “The very existence of warring schools within a field is a clue that the field is weak, however brilliant its practitioners.” (p265) The macroeconomists I’ve been trying this line on disagree, but it seems incontrovertible to me.

Posner makes two arguments about the depression. First, that’s capitalism for you: “The depression is the result of normal business activity in a laissez faire economic regime.” Secondly, the government couldn’t have fixed it: “Laissez faire capitalism failed us, but government allowed the preconditions of depression to develop and wreak havoc with the economy.” But although he argues that the government over-regulated hedge funds, he doesn’t believe they could have averted the crisis and depression.

[amazon_image id=”0674060393″ link=”true” target=”_blank” size=”medium” ]A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression[/amazon_image]

This is all a bit despairing. Posner’s final line is that problems and uncertainty will hang over the economy for many years to come. I agree that working through the gargantuan debt overhang will be a long and difficult process but – maybe it’s just my natural sunny optimism – find hope in the bits of the economy that don’t fall in to the ‘governments versus markets’ frame. As I often say, the idea of a ‘free’ market is a meaningless abstraction. A market is a process not a thing, and it occurs in a specific institutional setting. There are lots of economic institutions, all kinds of businesses with a range of legal frameworks, social enterprises, mutuals and co-ops, and these will, albeit by necessity, grow over the devastated landscape of the economy. If you want to be cheered, read about this encouraging example of social and institutional innovation in Hebden Bridge and Todmorden. There is a ton of innovation taking place, both the conventional kind and – like this example – the unconventional.