How not to prevent a recession

by William L. Anderson

I recently heard a radio interview with a prominent economist who was defending Federal Reserve Chairman Ben Bernanke's moves to shore up the markets on Wall Street. Bernanke, the economist said with emphasis, had spent years studying the "mistakes" of the Fed during the Great Depression and was not going to repeat the "errors" that the Fed directors committed from 1930 to 1933.

The "errors" of which the economist spoke were outlined by the late Milton Friedman both in his 1963 A Monetary History of the United States (written with Anna Schwartz) and his popular Free to Choose (with Rose Friedman), published in 1979. According to Friedman and his coauthors, the economic collapse that occurred in the United States from 1930 to 1933 came about because the Federal Reserve System failed to act in the face of bank failures and banking panics, leading to a massive contraction in the amount of money in circulation, which ultimately led to the calamity.

Friedman made his arguments as a means to counteract the common explanation of the Great Depression — that it was the result of the "internal contradictions" of capitalism. The typical explanation, popularized by John Kenneth Galbraith as well as the gaggle of Keynesians that proliferated in US universities, was that the capitalist system tends toward "underconsumption" or its evil twin, "overproduction."

(Galbraith held that underconsumption occurred because the income "gap" between the wealthy and poor grew during the 1920s — another "natural" outcome of capitalism — while John Maynard Keynes and his followers held that private investment spending was volatile because of the "animal spirits" of investors. The system had a built-in, self-multiplying, downward spiral whenever private investors were unwilling to throw more money into the economy.)

Those who blamed the Great Depression on the "failures" of the free market were all too happy to come up with their own "solutions," including attempts to cartelize the entire US economy or to force up wages via increased minimum-wage legislation or through the endorsement of expanding labor unions. Some, like Galbraith, went further and advocated out-and-out socialism and central economic planning. The free-market system, they have argued, is too inherently unstable to be left to its own devices. (This is the same argument that Paul Krugman makes twice a week from his perch on the New York Times op-ed page)

Thus, Friedman was seeking not only to explain why he believed the Great Depression occurred, but he also was trying to defend the free-market system, or at least was trying to defend most of the free market system. There was one portion of the system that was prone to failure, he argued, and that was the monetary system.

For more on this article, go to the Ludwig von Mises Institute's Website

Yale won't challege ruling making campus police records public

By A. Matthew Deal, SPLC staff writer

New Haven, Conn. — Yale University will not appeal a state agency decision that makes the university's police department a public body and subject to the state's open records laws, Yale announced in a press release today.

"The University will abide by the FOI Commission's decision requiring disclosure of certain documents related to Yale Police Department officers; we are doing so because Yale recognizes the unique and public law enforcement role that its officers play in the City of New Haven," the statement said.

The commission's ruling came in response to an incident that occurred in 2007 in which a teenager was arrested and charged with breach of peace for riding his bicycle on a public sidewalk. Janet Perrotti, a New Haven public defender, suspected the officers of misconduct and filed a request under the Connecticut Freedom of Information Act for the personnel records of the two officers involved in the arrest.

Yale denied Perrotti's request, arguing that its police department was a private entity and not subject to state open record law. Perrotti appealed the decision to the Connecticut Freedom of Information Commission, the state agency that resolves disputes over open records requests.

The FOI Commission decided in favor of Perrotti Feb. 13, concluding that the Yale police department was a public agency for several reasons, including Yale police's "exercise of full police powers throughout the City of New Haven."

"As Yale Daily News has been saying, it has been the right move both morally and ethically," said Andrew Mangino, editor in chief of Yale Daily News, the student newspaper at the school.

Mangino said that the paper has been able to get information, such as arrest records, from Yale's police department with few problems. But he said the paper definitely will take advantage of expanded access to Yale police records.

"I'm pleasantly surprised that Yale officials in dropping the appeal did not just say 'we are doing so because we can't win,' but 'we are doing so because we shouldn't,'" Mangino said.

"It is a key decision that speaks well of Yale administration and hopefully be a guide to other universities throughout the country."

This article was orginally published on the Student Press Law Center's Website, and is reprinted with permission.