Wisdom on the Economy

July 12th, 2009

Advice from an Economist Who Saw 1929 at Time.com is an interesting interview with Anna Schwartz.  From the introduction to the interview:

The Obama Administration should stop bailing out corporate disasters and abandon plans to move health care onto the backs of taxpayers.

Tough talk from Anna Schwartz, a financial sage who has seen it all, having lived through the crash of 1929 and co-authored with Nobel laureate Milton Friedman the highly acclaimed financial bible A Monetary History of the United States (Princeton University Press, 1963).

The financial matriarch has carefully tracked recessions, studied boom-and-bust trends and spent her life — all 93 years — mastering the intricacies of the monetary system and banking world. She’s worked as an economist with the National Bureau of Economic Research since 1941 and now serves as an adjunct professor at the Graduate Center of the City University of New York.

Sage commentary and advice from Dr. Schwartz:

I think that when the final date for the end of the recession is determined, it will be shown that it occurred sometime in the spring of this year. But I don’t believe the recovery will be very substantial, and therefore it’s hard to say the worst is behind us. A lot will depend on how consumers behave. … In addition, in so many industries there is overcapacity. More firms are selling cars than there is a demand for cars, so somehow that overcapacity will have to be eliminated. …

The bill that provided something like $800 billion for spending on government projects was supposed to make people willing to spend their own money. But that hasn’t happened. …from my observation of how, historically, expansions have come to an end and how recovery has happened, it’s always in terms of monetary stimulus. And that has not been the program of this administration. …

I’m opposed to the government bailing out firms that should be shut down because they are basically insolvent. A firm that’s insolvent should be encouraged to file for bankruptcy and rid the market of an institution that’s using resources that could be better used by productive firms. …

When you keep on bailing out institutions indiscriminately, there is no incentive for them to be prudent in what they’re doing, because they know that whatever they do, whatever problems they create by their own behavior, the government will come along and bail them out. … The government’s [bailout] actions will make the economy less productive and less prudent. …

Let the market decide if these firms deserve to exist. Government should not be the one who’s the arbiter. …

The trouble with Obama’s [health care] plan is that he has no concept of the cost that he will be imposing on the economy if his program is actually enacted. He’s spending money with the stimulus program — all kinds of programs — and he’s always able to give excuses on why the money should be spent. Yet despite all of his rhetoric, Obama isn’t really taking care of the budget … I don’t think the government’s job is to provide health care — the private sector is the proper provider. He has no concept of what he is demanding of the private sector [or] of how much it will cost in the way of limitations on the health care that will be available because of the government’s intervention. …

The quality, the incentive to provide innovations in health care, will all be in danger by the government’s intervention. A lot of people in Canada cannot get ordinary [surgical] procedures because there’s a limit on what the government provision of health care allows. So people are lined up for years to get ordinary procedures that in America are just routine. You can get a hip replacement [here] without waiting for years, and you don’t have to be a celebrity on a list to get immediate health care. …

It was the government’s program to promote homeownership that permitted all of the excesses that occurred over the years. People who should never have had a mortgage were induced to buy a home when they couldn’t pay for it. And as a result, those are the ones whose homes are being foreclosed, and the whole economy is affected.

(Credit to Tiffany B. for the link to this article.)


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2 Responses to “Wisdom on the Economy”



  1. Brian |

    She is, of course, (and pardon the pun) right on the money.

    It should be noted that in the last century, we haven’t ended a single recession/depression by raising taxes and/or increasing the size of government.

    Just the idea that this liberal government may do something stupid is hurting business. Oil companies are suspending investment in domestic exploration. That doesn’t just hurt us in the near term. Like it or not, oil is a significant source of wealth here, and not just for the oil companies: all engineering disciplines depend on it; the computer industry; medicine; construction; shipping (sea, riverine, rail, and overland); agriculture; auto. Now contemplate all of the businesses that rely on the support of the industries that are dependent on oil: travel and tourism; entertainment; communication. In short, everything.

    Without petroleum or without enough petroleum, we will, literally, move back to the 19th century.

    I don’t recall too many takers on my article about the agrarian life. If the agrarian life doesn’t appeal to you, you’d be wise to support big oil with everything in you, which means opposing nearly everything that this administration and the house and senate leadership stands for regarding energy.


  2. Tom |

    Brian, the article you referred to is great. Everyone should read it.


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