Amity Shlaes, FTW

She takes on Paul Krugman and exposes the antiquated nature of his policy recommendations:

Paul Krugman of the New York Times has been on the attack lately in regard to the New Deal. His new book “The Return of Depression Economics,” emphasizes the importance of New Deal-style spending. He has said the trouble with the New Deal was that it didn’t spend enough.

He’s also arguing that some writers and economists have been misrepresenting the 1930s to make the effect of FDR’s overall policy look worse than it was. I’m interested in part because Mr. Krugman has mentioned me by name. He recently said that I am the one “whose misleading statistics have been widely disseminated on the right.”

Mr. Krugman is a new Nobel Laureate, teaches at Princeton University and writes a column for a nationally prominent newspaper. So what he says is believed to be objective by many people, even when it isn’t. But the larger reason we should care about the 1930s employment record is that the cure Roosevelt offered, the New Deal, is on everyone else’s mind as well. In a recent “60 Minutes” interview, President-elect Barack Obama said, “keep in mind that 1932, 1933, the unemployment rate was 25%, inching up to 30%.”

The New Deal is Mr. Obama’s context for the giant infrastructure plan his new team is developing. If he proposes FDR-style recovery programs, then it is useful to establish whether those original programs actually brought recovery. The answer is, they didn’t. New Deal spending provided jobs but did not get the country back to where it was before.

As Shlaes points out, if you do not count the make-work temporary jobs that were handed out to people–jobs that “mask[ed] the anxiety of one who really didn’t have regular work with long-term prospects”–you had unemployment consistently above 14% from 1931 to 1940, with 20% unemployment six years into the New Deal. Even if temporary jobs were counted, unemployment would range from between 9% to 16%. The constant tax increases to fuel Keynesian programs certainly did not help growth. Neither did minimum wage laws, which kept employers from hiring more people because the few that were on the payrolls put a greater strain on employer budgets (money does not grow on trees, something that people like Paul Krugman always seem to forget when discussing the minimum wage).

Let’s give the microphone back to Amity Shlaes so that she can round things out:

Why does all this matter today? Because lawmakers are considering new labor legislation containing “card check,” which would strengthen organized labor and so its wage demands. Because employees continue to pressure firms to spend on health care, without considering they may be making the company unable to hire an unemployed friend. Piling on public-sector jobs or raising wages may take away jobs in the private sector, directly or indirectly.

What the new administration decides about marginal tax rates also matters. Mr. Obama said in a Thanksgiving talk that he wanted to “create or save 2.5 million new jobs.” People who talk about saving new jobs are usually talking about the private-sector’s capacity to generate jobs in the future — not about the public sector alone. We know that the new administration is going to spend. But how? It can try to figure out a way to do that without hurting the private sector. Or it can just spend, Krugman-wise, and risk repeating the very depression we seek to avoid.

One hopes that the Obama Administration, at least is listening to Shlaes’s sound warnings. Given his rabid partisanship, it is a good bet that Paul Krugman isn’t.