Friedman Co-Author Schwartz on the Crisis

Most people do not know Anna Schwartz but she is the Co-Author with the famous Economist Milton Friedman called “The Monetary History of the United States 1867 – 1961.” This book has been very popular inside and out of economics. In fact, the current Fed Chairman believes that it is one of the greatest books written. Now that Friedman has passed away this leaves Schwartz to be the expert that people should be listening to in this crisis situation. On this blog, I have been crying that we shouldn’t bail these banks out and they should fail. Mrs. Schwartz agrees here at The Wall Street Journal:

“Rather, “firms that made wrong decisions should fail,” she says bluntly. “You shouldn’t rescue them. And once that’s established as a principle, I think the market recognizes that it makes sense. Everything works much better when wrong decisions are punished and good decisions make you rich.” The trouble is, “that’s not the way the world has been going in recent years.”

It isn’t like I am a genius this is a simple, let them fail argument. It is how life works and it isn’t even Darwinist. It is simple those who make bad decisions should have to pay for those bad decisions. We learn this lesson as children and it shouldn’t change. Of course, the next argument is children are different than the financial institution, which would hurt us if the failed. Schwartz has great stuff to say about this too:

“Ms. Schwartz doesn’t buy it. “It’s very easy when you’re a market participant,” she notes with a smile, “to claim that you shouldn’t shut down a firm that’s in really bad straits because everybody else who has lent to it will be injured. Well, if they lent to a firm that they knew was pretty rocky, that’s their responsibility. And if they have to be denied repayment of their loans, well, they wished it on themselves. The [government] doesn’t have to save them, just as it didn’t save the stockholders and the employees of Bear Stearns. Why should they be worried about the creditors? Creditors are no more worthy of being rescued than ordinary people, who are really innocent of what’s been going on.”

Next she basically claims the Austrian Business Cycle as the winner. You can find an explanation here and here from me:

“The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates that induced ordinary people to say, well, it’s so cheap to acquire whatever is the object of desire in an asset boom, and go ahead and acquire that object. And then of course if monetary policy tightens, the boom collapses.”

If she can figure it out then why can’t the Fed Chairman. She is the number one person to call in a situation like this. The Fed Chairman actually gave a speech on Milton Friedman’s 90th Birthday and this is what he said: “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

So why doesn’t he follow this? The rest is here.



The URI to TrackBack this entry is:

RSS feed for comments on this post.

2 CommentsLeave a comment

  1. […] Original post by The Public Choice Capitalist […]

  2. OH, very good! I agree. “Make mine, Free trade”. What about Cuba? Why the U.S. don t permit the free trade with Cuba? U.S. is an enemy of the free trade. Till when?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: