One of the original supply-siders, Bruce Bartlett, explains in a brilliant op-ed why the ideas that worked so well in the early 1980′s are irrelevant today. Bartlett is promoting a new book, The New American Economy.
I continue to believe that what the supply-siders did was good for the economy, good for the country and good for the advancement of economic science. The best economists in the country were pretty clueless about our economic problems during the Carter years. It was widely asserted that the money supply had no meaningful effect on inflation, that marginal tax rates had no incentive effects, and that it would take decades or another Great Depression to break the back of inflation.
As all economists now know, these ideas were wrong. All economists today accept the importance of the money supply–perhaps too much; during the recent crisis many asserted that fiscal stimulus was unnecessary because an increase in the money supply was the only thing necessary to restore growth. (How this would have been accomplished when interest rates were close to zero was never explained.) All economists now accept the importance of marginal tax rates to economic decisionmaking, and organizations like the National Bureau of Economic Research publish vast numbers of papers on this topic.
During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts–the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.
These incorrect ideas led to the enactment of many tax cuts that had no meaningful effect on economic performance. Many were just give-aways to favored Republican constituencies, little different, substantively, from government spending. What, after all, is the difference between a direct spending program and a refundable tax credit? Nothing, really, except that Republicans oppose the first because it represents Big Government while they support the latter because it is a “tax cut.”
Bartlett exposes the caricature that has taken over conservative economic thinking, the slavish devotion to dogma that makes it impossible to consider the circumstances of our new reality. Think about it. Talk to a conservative about economic policy, and the answer, regardless of the circumstances, is usually the same – spending bad, tax cuts good. I can teach a three-year-old to repeat that.
Bartlett goes on to explain why massive spending was necessary with the economic collapse we faced last year, and the obscenely stupid response of many conservatives who suggested addressing the problem with more tax cuts.
Bartlett was an adviser to Jack Kemp and helped write the Reagan tax cuts. This is a must-read for anyone who wants to understand the history of supply-side economics and why one of its chief architects is arguing that it doesn’t apply today.