In 1982, with the economy struggling badly and unemployment pushing 11%, President Reagan agreed to a tax increase. Under the thinking that dominates Republican thought in the 21st century, such a policy would, of course, represent true insanity. After all, “everyone knows” tax increases “kill jobs.” If there was already a jobs crisis, why would Reagan dare do such a thing?
At the time, the right was livid, and made all kinds of drastic predictions about the consequences of this misguided policy. Bruce Bartlett, a former official in the Reagan administration, this week flagged a letter U.S. Chamber of Commerce president Richard Lesher sent to Congress in August 1982, analyzing the proposed tax increase:
“If H.R. 4961 is passed in these troublesome economic times, we have no doubt that it will curb the economic recovery everyone wants. It will mean a lower cash flow as more businesses pay more taxes, with a depressing effect on stock prices. It will reduce incentives for the increased savings and investment so badly needed to improve productivity and create more jobs. It will mean higher prices for many products and services. It will increase government costs in caring for those who, because the economy is held down, cannot find employment.”
As Bruce noted in his column, “It would be hard to find an economic forecast that was more wrong in every respect.” He added that it wasn’t the Chamber that had it backwards.
Economist Arthur Laffer told his clients on July 26, 1982, that the Tax Equity and Fiscal Responsibility Act, which raised taxes by about one percent of GDP, “will stifle economic recovery,” “retard economic growth,” and undercut “the economy’s ability to enter into a period of expansion.” On August 20, 1982, he told his clients that TEFRA “will tend to lengthen and deepen the recession.” Writing in the New York Times on September 12, 1982, economist Norman Ture said the administration’s claim that TEFRA would promote economic growth was “bizarre.” He said it would “weaken the impetus for economic growth” and make the economic recovery “less certain and less vigorous.”
All of this, we now know, wasn’t even close to being right. Almost immediately after Reagan raised taxes by quite a bit, the economy began to soar.
This isn’t just some historical footnote. This is worth keeping in mind because the basics of modern Republican economic thought are, quite literally, always wrong. It’s not a matter of ideological or philosophical differences — these questions have been put to the test, repeatedly for decades, and the tenets of conservative economic policy have an unyielding track record of failure.
It’s awfully embarrassing, or at least would be if they were called on it more.
Perhaps the only good thing about modern Republican economic thought is how easy it is to recite its pillars: tax increases always make the economy worse, tax cuts always make the economy boom, and public investment will always make the economy worse.
But pesky facts keep getting in the way.
In 1982, Reagan raised taxes and the right assured Americans this would be a disaster. The right was wrong, and the economy boomed.
In 1993, Clinton raised taxes and the right was even more certain this would be a disaster. The right was wrong again, and we instead saw the longest and strongest sustained recovery in recent memory.
In 2001, Bush slashed taxes and the right swore up and down this would work wonders. The right was wrong again, and the Bush policy failed spectacularly in every possible way.
In 2009, Obama spent heavily to turn the economy around and the right predicted a disaster. The right was wrong, and conditions improved almost immediately. The economy that had been in a tailspin, hemorrhaging jobs, began growing and creating jobs.
How do Republicans explain this? That’s not a rhetorical question. I seriously want to know how and why they believe their uninterrupted track record of failure should be overlooked. Indeed, here we are in 2011, and the same conservatives — in many cases, literally the self-same people — are still convinced that if we only follow their advice this time, and ignore history, economists, and common sense, we’ll be amazed by the results.
There was a point in the 1970s when Democrats lost a lot of credibility on military and national security issues, and Republicans became the credible party when it came to wars, being “tough,” and keeping people safe. Though this is beginning to change, much of the mainstream is stuck in this sort of thinking — the GOP is just assumed to know what it’s talking about when it comes to the military.
If politics made more sense, Republicans would be experiencing a similar dynamic on economic policy right now. It’s not that they’d just shut up altogether, but there’d be a built-in skepticism with the American mainstream. The GOP would keep talking about the economy, but Americans would unconsciously question their judgment. After all, they couldn’t really know what they’re talking about when it comes to the economy, because they’re Republicans, and “everyone knows” this is their weak point.
In some ways, that’s one of the great disappointments of the post-2008 era. By the end of the Bush presidency, the GOP was permanently discredited on the economy. It’s too bad the mainstream forgot to notice.