by JP Cortez, Activist Post:
In 1850, French economist Frédéric Bastiat published an essay that is misunderstood, or more often, unread, titled, “That Which is Seen, and That Which is Not Seen.” Bastiat brilliantly introduced the idea of opportunity cost and, through the parable of the broken window, illustrated the destructive effects of unintended consequences.
Unfortunately, because of misplaced belief in government benevolence, even the most powerful and successful members of the American citizenry often miss the point.
According to Reuters, Ramin Arani, a co-portfolio manager of the $25 billion Fidelity Puritan fund, said while discussing his current bullish stance of gold, “In terms of unpredictability, there is a tail risk with this administration that did not exist with the prior…There is a small but present possibility that government action is going to lead to unintended consequences.”
Arani’s overall bullish stance on gold is sound. Given the political climate, gold is an attractive “insurance” for equity exposure. The problem doesn’t lie in his financial analysis, but rather in the seemingly innocuous comment that followed.
There is a small but present possibility that government action is going to lead to unintended consequences.
To suggest the chances of unintended consequences are merely “small” is extremely naïve.
Notwithstanding myriad examples of government action leading to unintended consequences, including, but certainly not limited to, minimum wage laws, rent control, social security, and the disastrous war on drugs, there are countless examples of unintended consequences brought on by government action that should resonate with a multi-billion-dollar portfolio manager. Yet they seem to have fallen on deaf ears.
Unintended Consequences of Gold Confiscation
In 1933, President Franklin Roosevelt signed Executive Order 6102 which called for the confiscation of gold. Robert Higgs’ writes for the Mises Institute:
Besides being theft, gold confiscation didn’t work. The price of gold was increased from $20.67 to $35.00 per ounce, a 69% increase, but the domestic price level increased only 7% between 1933 and 1934, and over rest of the decade it hardly increased at all. FDR’s devaluation provoked retaliation by other countries, further strangling international trade and throwing the world’s economies further into depression.”
Looking for government action that led to the unintended consequence of literally worsening the worst depression in world history? Check.
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