Amity Shlaes on the Alleged Damage to the Economy Proposed by Democrats

The Pravda on the Potomac lets Amity Schlaes print more GOP propaganda in her Five Ways to Wreck the Economy. Charge one is that Democrats want to bring back Smoot-Hawley trade protectionism. Not only is this charge false, it also assumes the trade protectionism lowers aggregate demand. No – trade protection by itself would tend to raise net exports. Then again – the concern might be what Schlaes describes here:

An irate Canada and many other nations retaliated. At a time when the United States was begging for foreign markets, it lost them.

But let’s move on. Schlaes actually claims that the Sarbanes-Oxley Act has induced what would have been investment in the US economy to occur abroad as she argued this about the creation of the SEC in 1934:

By 1934, Congress was creating the Securities and Exchange Commission. The Roosevelt administration also prosecuted business leaders, including former Treasury secretary Andrew Mellon and utilities magnate Samuel Insull. The new regulatory culture cut crime and protected investors. But the arbitrary nature of the assault petrified Wall Streeters.

I guess she is not aware that investment demand rose dramatically during FDR’s first term in office. Then there is the fiscal responsibility leads to recessions canard:

Today, Democrats are planning tax increases that make Bill Clinton’s hike look mild. The proposals start with lifting the cap on Social Security payroll taxes — an effective increase in the top marginal tax rate of 6.2 percent, or for some 12.4 percent, all by itself. Add in the promised repeal of the Bush tax cuts and you have an additional 4.6 percent increase. Effective top rates approach 50 percent. There are also proposed increases for dividends and capital gains. Taken together, these will make the U.S. economy sluggish and more like that of Europe.

I have two problems with this. One is that real GDP growth averaged 3.7 percent during the Clinton years. For the second problem, let’s give the microphone to Dean Baker:

While much of the column is just random ranting against Democratic policies, the column does include the assertion that the Democrats want to eliminate the cap on the Social Security payroll tax, “an effective increase in the top marginal tax rate of 6.2 percent, or for some 12.4 percent, all by itself.” The problem with this charge is that no one of any prominence in the Democratic party is proposing removing the cap on the payroll tax. Senator Obama has called for imposing a tax of 2-4 percent on income over $250,000. This would affect only about one-fifth as many people as would be affected by removing the cap on the tax and the maximum impact would be less than one-third as large as Ms. Shlaes suggests. Columnists are supposed to have considerable leeway in expressing their views, but they should not be allowed to attribute positions to their opponents which they do not hold.

Amy – I think Dean suggested that you lied on this one. Charge four was:

Assuming bigger government will bring back growth.

More complaining about FDR but nothing about how a President Obama would make the size of government much larger. Then there’s her catch-all category:

FDR spoke of “bold persistent experimentation.” Obama speaks of “change.” Both can do damage.

That’s right boys and girls – when Republicans talk, oil prices plummet. When Democrats talk, the economy falls to hell. We know Amity Shlaes loves to rail at how FDR caused the Great Depression – but this diatribe has nothing to do with the 2008 election.