SUPPLY SIDE CODA….A couple of days ago, after reading the latest tax-cut pandering from Republican presidential candidates, I had a weak moment and got to feeling a little sorry for supply-side economists. The one or two honest ones left, anyway. I’m obviously not a supply-sider myself, but the doctrine does have some serious critiques to make, and I got to wondering if serious supply-siders got tired of having their entire school of thought made into a laughingstock by today’s endless parade of yahoos blathering mindlessly about how tax cuts always and everywhere magically increase revenue. Surely they find such childishness embarrassing?
“Maybe I should email Bruce Bartlett and ask him what he thinks,” I thought. After all, he was there at the creation, so to speak. But then I got busy and didn’t bother. Turns out, though, that he was reading my mind. Here’s Bruce in today’s New York Times:
The original supply-siders suggested that some tax cuts, under very special circumstances, might actually raise federal revenues….But today it is common to hear tax cutters claim, implausibly, that all tax cuts raise revenue. Last year, President Bush said, “You cut taxes and the tax revenues increase.” Senator John McCain told National Review magazine last month that “tax cuts, starting with Kennedy, as we all know, increase revenues.” Last week, Steve Forbes endorsed Rudolph Giuliani for the White House, saying, “He’s seen the results of supply-side economics firsthand — higher revenues from lower taxes.”
….As the staff economist for Representative Jack Kemp, a Republican of New York, I helped devise the tax plan he co-sponsored with Senator William Roth, a Delaware Republican….We believed that our tax plan would stimulate the economy to such a degree that the federal government would not lose $1 of revenue for every $1 of tax cut. Studies of the 1964 tax cut showed that about a third of it was recouped, and we expected similar results….When President Reagan proposed a version of Kemp-Roth in 1981, every revenue estimate produced by the Treasury showed large revenue losses from its enactment, based on standard models. The independent Congressional Budget Office produced figures that were almost identical.
His conclusion? “I think it is long past time that the phrase be put to rest. It did its job, creating a new consensus among economists on how to look at the national economy. But today it has become a frequently misleading and meaningless buzzword that gets in the way of good economic policy.”
Now, Bruce does pass over supply-side’s history a wee bit too breezily in his piece: it was, after all, considerably oversold by no less than Ronald Reagan himself, so today’s supply-side yahooishness is hardly a new thing. But I’ll leave that argument to the real economists. In any case, there’s not much question about one thing: regardless of whether supply-side theory was boon or bane in the 1980s, it’s now little more than a ritual incantation uttered by the clueless for the benefit of the rabid. It’s time for conservatives to grow up and put away the fairy tales.
UPDATE: Excellent! I said I’d leave the economic argument to the economists, and they come through here. Mark Thoma sets the stage, and many others follow in comments, including Bruce Bartlett and Paul Krugman. If you’re interested in more details, especially about the historical context of the 1970s, click the link.