In his piece today, Lew Rockwell points out that the F/F bailout simply postpones the inevitable bust, but also ensures that the bust will be more severe in the long run than it would have been had the two faux “mortgage giants” been permitted to fail.

One of the things that people fail to understand is that the New Deal actually blocked the recovery. It perpetually stopped the necessary economic readjustments by trying to stop the market process of allowing factors of production to move to their highest-valued uses. Instead, the government (first with Hoover and then with Roosevelt) forced factors of production to their “highest-valued” political uses.

The rate of unemployment stayed quite high during the Hoover-FDR presidencies until after Pearl Harbor. Contrary to what we are taught in history classes and on the pages of the New York Times and Paul Krugman’s columns, World War II did not “end” the Great Depression. It continued the political direction of the factors of production, period.One of the important things that happened, intellectually speaking, was that the New Deal laid upon the economy a “progressive” purpose. That is, people came to see the economy as having a purpose of having low unemployment, and that the government was responsible for that happening.

Thus, we have the Employment Act of 1946, which directs the government to give us low unemployment. There is nothing in that act, or any government statements, that points out that the end of production in a market economy is consumption. Instead, the New Deal and the 1946 act declared that the “purpose” of an economy is to “create jobs,” period.