Just what the world's economy needs right now: A trade war --- to "protect" American business from "unfair" foreign competition. Sen. Charles Schumer (D-NY) is doing his best Smoot-Hawley routine in unveiling a bill to punich China for its alleged currency manipulation. "China's currency is like a boot on the throat of our economic recovery," Schumer said.
We all know the affect of Smoot-Hawley, which upped tarrifs on some 20,000 on imported goods. Many economists argue that raising tarrifs during a recession contributed to the severity of America's recession. It would be better to LOWER or get rid of barriers to freed trade. The money saved by U.S. consumers could then be put to more productive use. Her is an interview I did with Amity Shlaes, author of The Forgotten Man; my article was basically about "recession dos and don'ts." Raising tarrifs is a don't. ABelow is an excerpt from my Q&A:
RR: And Obama seems to be aligned with labor.
AS: Don't raise the cost of labor in a downturn — that's a big lesson. Because Obama now has a possibility of increasing labor costs. There are a number of recent pieces of legislation; one is “card check,” which will take away private ballots in the workplace over unionization votes. And that's what the lawmakers have been pushing for years. And another: Don't do protectionism.
RR: Obama indicated somewhere along the line that he'd like to unilaterally renegotiate NAFTA, the North American Free Trade treaty that Clinton negotiated.
AS: I don't want to bash Obama — I actually like many things he says. But we're about to do protectionism by renegotiating NAFTA, yes. Congress really wants it, and that will hurt us both economically and politically.
RR: What's another lesson of the New Deal?
AS: Another easy mistake is raising taxes. You're not supposed to raise taxes in a downturn. But politicians do it. They undid Mellon's tax-cutting revolution of the 1920s. In the New Deal, they went from a top rate of 25 percent into the 60 percent range for the top rate. FDR and his party poured on the taxes, such as the “undistributed profits tax.” This punished a company for doing something wise: sitting on cash to wait for what management thinks is a better time to invest in its business. Those New Yorker magazine cartoons of wealthy men crying into their martinis were accurate. This was a period when business felt there was no way it could win.