Via the great and good Academic Elephant, I am made aware of the fact that the great and good Anna Schwartz is speaking out against a whole host of economic policies that are being implemented to combat the recession, and channeling Milton Friedman to do so. Concerning Schwartz’s critique of the Federal Reserve’s activity, I have to side with Bernanke; the recession does indeed appear to constitute a crisis of liquidity, as much as a crisis of confidence. As such, I really don’t have much of a problem with having Bernanke flooding the system with liquidity, which I see as having followed Friedmanite and Schwartzian principles, the opposition of Schwartz notwithstanding. To be sure, Schwartz is quite right in stating that we have a crisis of confidence to contend with as well, but that doesn’t negate the liquidity issue. Moreover, it would still appear that deflation is more of a threat to the economy than inflation is; another point in favor of having the Fed pump money into the system. A pronounced secular deflationary cycle would be nothing short of disastrous.
Schwartz does make a good point in stating that Bernanke–and for that matter, Henry Paulson, George W. Bush, Timothy Geithner, and Barack Obama–have made no effort whatsoever to explain why it is that some entities deserve bailouts, while others do not. The bailouts were explained quite badly indeed, a failure in explanation which has led to a lot of anger and disgust on the part of the populace when it comes to examining and judging the government’s response to the economic crisis.
All of that having been written, Schwartz is dead-bang-on-accurate when with the following:
. . . Schwartz says that Friedman—who along with John Maynard Keynes, his polar opposite in thought, was the 20th century’s most influential economist—would be just as disturbed by what Barack Obama is doing today. “Obama nowadays is the typical believer that government can do everything. So he’s going to change the way electricity is produced in this country. He’s going to change the way energy is going to be produced in this country. And it’s all going to be a government effort. And Friedman would say, ‘Look, if these really are such desirable things, why isn’t it that the private sector has taken advantage of an opportunity to make money and to improve things?’ “
And Schwartz is dead-bang-on-accurate with this as well:
. . . And now, as she surveys the wreckage of the last two years, Schwartz has one thought: if only Milton were here. “Ever since his death I have lamented the fact that he has not been around to express his views on what’s going on,” she told me the other day at her mid-Manhattan office at the National Bureau of Economic Research.
Despite constant criticism of the Obama administration and the Federal Reserve over their handling of the financial crisis, opponents of their policies don’t have a leader—especially on the right. Their problem is “the big lack of a voice like Friedman’s, someone who’s got instinctive understanding of the way markets operate, a very profound knowledge of history,” Schwartz told me. . . .
Quite so. Whatever one’s specific agreements or disagreements with Schwartz’s critique, Friedman is deeply missed. Among other things, it would be nice to have Friedman around to rebut the likes of Naomi Klein, and others who have found the courage to debate with Milton Friedman now that Milton Friedman isn’t around to debate back.