It’s fair if your water pitcher just broke

I just listened to an EconTalk podcast interview with Richard Posner about his new book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression [amazon]. The book has gotten a bit of buzz for the way in which Posner semi-recants certain libertarian or Chicago-style economics positions he is known for. But certain other positions he has not recanted, such as his narrow view of economic actors’ duties to consider negative externalities of their activities (discussed at CT before here and here). In the podcast, Posner basically asserts that those actors in the financial sector who almost crashed the world economy were right to do so, in the sense that it was rational for them, individually, to be massive ‘risk polluters’ (to coin a phrase someone else has probably coined already.) He would probably go further, although he isn’t actually asked to in the podcast: some of these actors were obliged to take the risk. In at least some cases it would have been their strong, positive fiduciary duty, under the circumstances, to do something which – taking a larger view – seriously threatened to run the whole world economy off a cliff. Because that was the apparent route of profit-maximization. It was their job not to take the larger view. Posner blames regulators, not these profit-maximizing actors, for the market failure; for not seeing that the damage to everyone downwind of all that toxic risk was so great that it should not have been permitted. [click to continue…]