The faux economist Paul Krugman has been on the attack lately, demanding that the government act to force up business costs, go on a huge public works binge, and generally to spend, spend, spend. Anyone who disagrees with this neo-Keynesian scheme is attacked as (horrors) an ideologue or capitalist lackey.

Krugman’s recent Nobel prize has given him the so-called intellectual capital to push his schemes in the media with some “credibility,” although one does not need to be right to have credibility with the mainstream media. In fact, the media always prefer those who want to empower the state.

Amity Shlaes, author of The Forgotten Man, a book that attacks the New Deal, is firing some shots of her own at Krugman, including a piece on the Wall Street Journal’s webpage today. Called “The Krugman Recipe for Depression,” she debunks his nonsense by pointing out that the New Deal suppressed private investment and resulted in very high unemployment. (Krugman, of course, claims that the reason that there was little private investment was because the economy was slow, thereby employing his usual circular reasoning. Perhaps this is appropriate, given that Krugman is a True Believer in the “circular flow,” which is how economists employ their own brand of the informal fallacy of Begging the Question to economic analysis.)

She writes:

What kept the picture so dark so long? Deflation for one, but also the notion that government could engineer economic recovery by favoring the public sector at the expense of the private sector. New Dealers raised taxes again and again to fund spending. The New Dealers also insisted on higher wages when businesses could ill afford them. Roosevelt, for example, signed into law first his National Recovery Administration, whose codes forced businesses to pay an above-market minimum wage, and then the Wagner Act, which gave union workers more power.

As a result of such policy, pay for workers in the later 1930s was well above trend. Mr. Ohanian’s research documents this. High wages hurt corporate profits and therefore hiring. The unemployed stayed unemployed. “If you had a job you were all right” — the phrase we all heard as children about the Depression — really does capture the period.

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.

Now, she is wrong about deflation, and Murray Rothbard in America’s Great Depression has laid out the case for deflation. However, Shlaes is correct regarding reasons why the depression lasted so long, and how Congress will destroy the economy if it carries out the dictates upon which the Democrats campaigned this year.