Amity Shlaes recommends the President-Elect study the Great Depression:
With one hand the New Dealers gave, spending to stimulate the economy. In fact, they put through the same kinds of infrastructure projects that Obama and congressional Democrats are considering today.
With the other hand the New Dealers took away, by raising tax rates — just as the new president and Congress are likely to do in 2009. Especially damaging to the prospects of recovery were the heavy levies of the second half of the 1930s, which, as [Paul] Krugman points out, were key in ‘precipitating an economic relapse that drove unemployment back into the double digits.”’
She recommends some capital gains tax relief and concludes:
What about the hoped-for recovery of 2009? The planned tax increases would diminish the effect of those billions for infrastructure, just as tax increases undermined the Public Works Administration or the Works Project Administration in the 1930s. . . .[T]he Democratic Party will now have to decide which is more important: its eagerness to trash the Bush-Reagan tax legacy, or its eagerness for recovery.
Gazing at Messrs. Paul Volcker, Robert Rubin, Tim Geithner, Austan Goolsbee et al. –- the talented Obama economic team -– you can’t preclude that the new administration will, in the end, scuttle some of its destructive tax increases. The rest of us just have to help them figure out a graceful way to do so.
But, like so many other issues involving Barack Obama, it comes down to who he really is. Is he a wealth-redistributing ideologue, or a moderate seeking to build a Democratic majority? In national security, is he the sort of pragmatist who would keep Defense Secretary Robert Gates and secure the gains in Iraq, or the netroots’ hero who doesn’t much care about facts on the ground? Does he really mean to eradicate all state and federal restrictions on abortion, or is he looking to capture permanently a segment of values voters? No one is quite certain, maybe not even him.
But unlike the campaign, where he could wait for events to spin to his advantage, the President-Elect now must choose. The fact that he hasn’t yet come up with a Treasury Secretary isn’t encouraging — it suggests that choosing, and choosing promptly, aren’t his strongest skills.