The government’s tax credit buyers’ program, ongoing zero interest rate policy, too-big-to-fail bailout policy, and the protection of big mortgage owners’ cloudy ownership rights, is cruelly extending the clearing of housing malinvestment that built up during the housing boom.

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s? Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers? Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

The world is undercollateralized. This is the single most important feature of the 2011 economy. Sixty years ago, if assets were worth less than loans, it was possible to work our way into the black. In 1950, 59% of U.S. corporate profits were from manufacturing; 9% were from finance. The roles of manufacturing and finance have reversed. Thus, we witness the desperate attempts to forestall what cannot be prevented. Yet, the world must deleverage. Banks must write off loans. Loans to bankrupt developers and companies must be called. Living standards must fall.

If buying local makes sense, there’s no need to extol or encourage it. If it doesn’t make sense, but people do it anyway in a half-baked attempt at local stimulus or in a vain effort to save the planet, the effects are not “good for the economy,” but quite the opposite. So don’t let green guilt or quasi economics trick you into paying too much. Simply seek your greatest value, and savor the benefits of the economy, local and global.

Humans frequently ignore painful or frightening truths, subconsciously believing that denial can protect us. Instead, our delusions make us ever more vulnerable, and whatever suffering we choose to ignore continues unabated. The implications for policy makers, investors, and just about everyone else are enormous.

So the American people borrowed and spent close to a trillion dollars to destroy a net of more than one-half million jobs. Does President Obama understand this? I very much doubt it. When he expressed puzzlement at the idea that the stimulus money may not have been well-spent, and said that “spending equals stimulus,” he betrayed a shocking level of economic ignorance.

The issue boils down to whether health care rationing is going to be undertaken by government officials or instead by individuals making their own decisions with their own money. The default option is neither, with the Democrats blocking anything that resembles a voucher and the Republicans blocking anything that resembles a government panel.

The effects of minimum wages are among the most tragic examples of the law of unintended consequences. Wages are determined by competition, and employers’ willingness to pay is fundamentally determined by an employee’s ability to produce. When governments pass laws mandating wages that are greater than the value of what Helen Housekeeper can produce, it is no longer advantageous to employ Helen. The best thing we can do for her is stop “helping” her with labor market interventions and start finding was to expand her opportunities and help her become more productive. To paraphrase my friend David Henderson, people who work to get you fired are not your friends no matter how much they claim to care.

What we may be seeing today is the acceleration of a number of trends that are troublesome from the standpoint of the unemployed. People without college degrees face increased competition from foreign workers due to globalization. They are frozen out of government, health care, and education by protectionist measures that require educational credentials. And people in the higher-income brackets are imposing their preferences for health insurance on people who have a hard time earning enough to pay for it.

The point is that our reasoning ability evolved in order to make us persuasive and also difficult to persuade. It did not evolve in order to find truth.