The “New Era” Error

To further show how dead on Lew was in his 1998 speech disputing the Wall Street Journal‘s claim that a “new era” had arrived and the business cycle has been repealed, consider the following quote from William Barber’s book, From New Era to New Deal (Cambridge Univ. Press, 1985). Describing interventionist-minded economists of the 1920s, Barber writes:

“They challenged the orthodox view that economic activity was governed by immutable and universal laws. To the contrary, they insisted that economic performance could be controlled and improved through informed manipulation [by the state] . . . . Conclusions derived from deductive theorizing . . . were instantly suspect . . . and were also tainted by their association with a discredited European intellectual tradition.”

Herbert Hoover, who was secretary of commerce from 1921-1928, and then president, was a disciple of these “new era” economists. Barber says of him: “Hoover believed that human manipulation could triumph over any alleged ‘laws’ of economics.”

“We are constantly reminded by some of the economists,” Hoover himself harumphed in 1923, “that the fluctuation of the business cycle is inevitable . . .and that [it] cannot . . . be regulated. I have great doubts whether there is a real foundation for this view.” (Barber, p. 15).

So Hoover and his Republican Party cohorts ignored economic law and championed wage and price floors, protectionism, corporate welfare, government-created cartels, inflation, high taxation, “public works” programs, deficit spending, inheritance taxes, pre-Keynesian “fine tuning” attempts, and myriad other interventions. The result was the economy of the 1930s, as Murray Rothbard shows in America’s Great Depression.

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9:09 am on July 17, 2003