Supply Side Economics

SUPPLY SIDE ECONOMICS….One of the things that sent me over the edge on Sunday was an op-ed in the LA Times by Bruce Bartlett about the wonders of supply side economics. Here’s what he said:

Even before he absorbed the substance of what came to be called supply-side economics, [Irving] Kristol quickly grasped its political potential: “I was not certain of its economic merits but quickly saw its political possibilities,” he wrote. “To refocus Republican conservative thought on the economics of growth rather than simply on the economics of stability seemed to me very promising.”

This is now at the center of Republican ideology: tax cuts promote growth, a rising tide lifts all boats, and when the rich benefit, we all benefit.

The problem is that this is simply untrue. Here are the per capita GDP growth rates (adjusted for inflation) for the last four decades in the U.S.:

  • 1960s: 35%

  • 1970s: 24%

  • 1980s: 22%

  • 1990s: 19%

Growth rates in the U.S. have been declining slowly but steadily for many years, and there is no evidence that tax rates affect that growth at all. It’s true that different tax regimes can affect the economy by introducing or removing various distortions, but the actual amount of taxation has no apparent effect on growth at all. Historical comparisons in the U.S. demonstrate this, and international comparisons demonstrate it as well. The foundations of economic growth are still a substantial mystery.

But what really annoys me is that it’s clear that conservatives don’t really believe this anyway. As Bartlett notes, Kristol liked the idea of tax cuts even though he “was not certain of its economic merits.” And Bartlett himself gives the reason: tax cuts drive up the deficit and therefore throttle spending on social programs:

Neoconservatives thought that attacking massively popular spending programs was both counterproductive and politically hopeless. Congress would never vote to cut such programs directly, and would not even restrain their growth unless under enormous political pressure.

So: social programs are popular and democratically elected legislatures will support them. Therefore, the only way to stop them is to invent untrue but plausible fairy tales about tax cuts that have the real goal of producing massive deficits that will force cuts in these programs.

And this is still the plan. Programs like Social Security and Medicare are growing not because liberals are forever expanding them, they’re growing because of simple demographic and technological pressures. This means that the only way to keep them from growing is to cut benefits.

But they will never admit that, will they? Republican ideology is now focused on creating artificial fiscal crises that will “force” program cuts, without ever stepping up to the plate and owning up to the program cuts they want to make. Why? Because it’s electoral suicide.

So I’ll ask my conservative readers again: you say you want smaller government. Fine. Tell us what programs you want to cut. And if you’re serious, you’d better include some swinging cuts in Medicare, Medicaid, and Social Security, because that’s where the big money is.

Let’s hear it.

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