Supply side economics is the DEVIL!
THE RISE OF SUPPLY-SIDE ECONOMICS
The central concept of supply-side economics is that tax cuts cause economic growth. Tax cuts allow entrepreneurs to invest their tax savings, which creates higher productivity, jobs and profits. This, ironically, allows the entrepreneur and his new workers to pay even more taxes, even at lower rates.
The supply-side idea is a simple one, and makes a popular political message. However, it is interesting to note that mainstream economists -- even conservative ones -- almost universally reject supply-side theory. In the early 80s, the influential and multi-partisan American Economics Association had 18,000 members. Only 12 called themselves supply-side economists.1 In American universities, there is no major department that could be called "supply-side," and there is no supply-side economist at any major department.2 This is significant, because academia in the 70s was dominated by conservative economic theory, and conservative economists normally welcome any ideas that make the case against government intervention. The fact that they scrutinized supply-side theory and rejected it wholesale gives eloquent testimony to the theory's bankruptcy. When candidate George Bush called it "voodoo economics" in the 1980 presidential campaign, he was doing so with the full backing of America's economic community.
Many people are surprised to learn that "conservative" does not necessarily equate to "supply-side" economics. The difference lies in spending. Mainstream conservative economists generally believe that tax cuts should be accompanied by spending cuts -- that is, fiscal responsibility. Supply-side economists believe that taxes should be cut -- period. Spending cuts and deficits, they believe, are not important considerations. The 1980 supply-siders claimed that the growth resulting from tax cuts would be so great, and the total tax collections increased so much, that America would simply outgrow its deficits. This did not happen, of course. Growth in the 80s was no greater than growth in the 70s, as the statistics here will show. But the national debt nearly tripled under Reagan. Who deserved blame for this is a controversy that continues to this day.
Supply-siders point out that their theories are not wrong simply because academia rejects them. This would be falling for the "argument from authority" fallacy. After all, it was once a scientific consensus that the earth was flat. Besides, scientific revolutions have always started out as minority opinions, which have often faced hostility from the consensus of the time. Although these are worthy points, they are not conclusive arguments against the value of scientific consensus. These are, after all, our best and brightest scholars, whose day jobs are to analyze these issues. Their theories should be among the first we consider. It does not mean that they are correct, of course, but more often than not their information is better, and their theories more coherent, than the average person's.
Who were the 1980 supply-siders? The following is my summary of Paul Krugman, one of the world's top economists, who gives an excellent account of their rise in his book, Peddling Prosperity. The supply-siders were what many have called "cranks," or people who stand outside the scientific mainstream and hurl accusations of basic stupidity and corruption at the entire scientific community. Cranks are people who are cut off from their academic colleagues, who neither argue before scientific conferences nor write for peer-reviewed journals. Instead, they speak before groups they themselves organize, and write for publications they themselves edit.
An unusually high percentage of supply-siders were not economists at all, but journalists with no formal training. Robert Bartley, who has run the editorial pages of The Wall Street Journal for nearly 25 years, was perhaps the movement's greatest spokesman. (His contempt for his critics can be seen in one of his chapters on the Reagan Years, entitled: "What You Learned If You Were Awake.") Other journalists included Jude Wanniski and Irving Kristol. Crusading in their national publications, they were able to reach a much wider and more popular audience than most economists could. Of course, journalists are normally reporters of stories, not creators of theories. You would expect them to report the latest cure for cancer -- but not claim that they had discovered such a cure themselves. This is common sense in most fields like biology and physics, but, for some reason, it is a line that many journalists like Bartley and Wanniski frequently cross when it comes to economics.
The movement did have a few intellectuals, but even here, its professors were far from the mainstream. Arthur Laffer has a Ph.D. in economics, but he has contributed little to scientific conferences or peer-reviewed journals, instead playing to crowds on the lecture circuit and writing for popular publications. He is famous for the Laffer Curve, which purports to show that productivity declines as taxation increases. Most economists agree that the general principle behind the Laffer Curve is correct, but widely disagree on how much taxation is necessary before productivity starts declining. Laffer believed that the effects of taxation were so heavy that cutting them would significantly boost productivity, thereby outgrowing any deficits caused by the tax cuts. Again, this prediction proved false.
Another supply-side economist was Paul Craig Roberts, a Congressional staffer for quarterback-turned-Congressman Jack Kemp. Another was Martin Anderson, who, stung by academia's refusal to hire supply-side economists, would go on to write a bitter tirade against academia in a book entitled Impostors in the Temple.
