The Triumph of Economic Ignorance

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The Commerce Department reports that inflation-adjusted spending declined by 0.4 percent in May. It’s the first decline in real spending since December and a real foreshadowing of what’s coming. The trajectory is now well-established: depleted savings, real income flat and declining, consumers worrying, investors rethinking everything, and the public ever more demoralized and frustrated.

It’s a scramble for resources at a time of enormous fiscal and monetary fakery that led people to believe that everything was going to be just fine, and that the magic of the printing press and Congressional profligacy would render economic logic null and void.

Here is a picture of how party time—we’re rich so let’s spend like crazy!—turned into a sad state of affairs in rather short order.

And yet the reality is here, and we are watching it all unfold day by day in the data. There is something exasperating about the whole thing simply because it was all so unbearably predictable. The cause and effects are all completely known.

I’m reminded often of the new events of great economic frustration in the life of economist Henry Hazlitt, author of “Economics in One Lesson” (1946) among a dozen other books and 10,000 plus articles. The first event came in 1933. He was working as the literary editor of The Nation magazine, mostly covering novels and biographies and rarely touching on political themes at all.

But Franklin Roosevelt won the 1932 election and immediately embarked on a path that had not been talked about in the campaign. FDR had campaigned on a program of frugality in government and ending alcohol prohibition, a platform that won him the presidency. Once taking office, he shocked the nation with a series of executive orders, among which was the confiscation of privately held gold.

The New Deal turned out to be something very different from what anyone would expect. He gathered labor unions, heads of large corporations, and rallied the three-letter agencies that had mostly a wartime founding, and cobbled together many more. He was going to beat back the depression through a form of central planning that had already become popular in Italy, Spain, and Germany.

By Jeffrey A. Tucker

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