Do the Right Thing...?

There was an interesting piece in the Weekend Edition of The Wall Street Journal on Saturday. It was an interview with Anna Schwartz of the National Bureau of Economic Research (NBER). If the name is unfamiliar to you, she was the co-author with Milton Friedman of A Monetary History of the United States, published in 1963. She is 92 years old and is considered one of the preeminent monetary economists.

The most interesting part of the interview was near the end. She believes that Mr. Bernanke is fighting the last war, i.e. treating the current situation as if it were the same as The Great Depression. According to Dr. Schwartz, the issue back then was one of liquidity. In the period immediately following the Stock Market Crash, liquidity dried up. The Fed compounded the problem back then by tightening up on liquidity – starving the financial system of what was needed to keep running.

But Dr. Schwartz feels that this is not a liquidity crisis, rather a crisis of confidence. If that is true, the Fed can pump as much liquidity into the system as it wants, but until lenders feel confident that they’ll be repaid, little is going to happen. She also feels that Secretary Paulson’s original proposal to purchase the bad debt may have been more effective than the current Fed attempts.

This can make for an interesting discussion in classes discussing current events and monetary policy. It may also be the basis for some lively debates, either in class or on-line if you have a class chat room, blog or wiki. I would submit that another of her comments may also provide some fodder for discussion. About half-way through the piece, Schwartz says “Everything works much better when wrong decisions are punished and good decisions make you rich.” She continues, “It’s very easy when you’re a market participant 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 as pretty rocky, that’s their responsibility. And if they have to be denied repayment of their loans, well they wished it on themselves.”

This brings me to my question on this blog. How many of you use classroom blogs/wikis/chats to extend classroom discussion? If you don’t, is it a decision you made or one that is imposed by your school or district? I’m curious as it might help us at the Powell Center decide what we can do further take advantage of this medium.

I look forward to your comments.