We come now to bury Supply Side EconomicsPosted: July 25, 2010
I’ve been having a major hissy fit about the extraordinary bad policy measures proposed and undertaken by Republicans for sustaining tax cuts and deficits for as long as I can remember. The deal is, however, nobody likes it when you tell them they can’t have a free lunch when Ronnie Raygun repeated it ad infinitum. That is very much how the Republicans have achieved political victory since the Reagan years. Basically, they promise to cut taxes no matter what the circumstances and spend money on every military adventure and toy that comes down the pike and chock it up to preserving American exceptionalism. Ronald Reagan and Dubya Bush are responsible for the deficit today and the people that benefited from their tax cuts–and voted for them–should be asked to clean up the mess.
I was ever so pleased to read this article by FT’s Martin Wolf that recognizes ‘supply-side economics’ for what it is. It has nothing to do with a good economy and has everything to do with good politics. It’s a policy of promising and delivering everything and then screaming about the huge bill when a Democrat is in office. Every 8 years or so they do one huge Dine and Dash on the country. Wolf realizes this and basically calls Dubya’s tax cuts “massive, irresponsible, and unsustainable”. He also rightly calls the Reagan years for what they were. Reagan was a premier example of Keynesian policy. Ronald Reagan spent us out of the recession of the early 1980s. The only thing that was supply side about it was the high supply of bull shit rhetoric that went along with it. Some one needs to correct the message.
Ronald Reagan was the country’s premier Keynesian. Then Bill Clinton got into office and led us to a very long,very good business boom by doing what Keynes said to do during that time. You only deficit spend when the economy sucks. It had improved by the beginning of the 1990s. Bill Clinton was frugal. I can never forget the day that Dubya/Cheney looked at those surpluses they inherited and Cheney said, deficits don’t matter, Reagan showed us that. Then they immediately started two wars and gave away the Treasury to every corporation and rich person in the country. It’s damn ironic now that every Republican and Blue running Dawg thinks deficits matter. This is the time when we need them. We should’ve paid more attention to them like five years ago. But Cheney of no heart has brass balls and a spine. If only we had a Democrat in elected office with spine and balls.
Anyway, here’s Wolf’s nutshell description of supply side economics. It’s a good one.
To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.
The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?
How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives – for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.
In short, Republicans chose one side of Keynesian economics–the side that uses government spending or tax cuts to spur an economy that should be used only during recessions–and applied it like the apple cider vinegar of economic policy. One spoonful of tax cuts fits all! Decades of data have shown economists that that is the farthest thing from truth, however, the political windbags of the right have managed to continue the charade that every one can have everything and not pay for it as long as we just cut taxes. (That is until a democratic president takes office). It’s like saying 1 + 1 = 4. Problem is that many people still buy that. It’s like thinking there were Dinosaurs in a literal Garden of Eden.
The truth is that tax cuts NEVER pay for themselves. Even one of Dubya’s advisors has said as much.
Indeed, Greg Mankiw, no less, chairman of the Council of Economic Advisers under George W. Bush, has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”. Those are his words, not mine, though I agree. They apply, in force, to contemporary Republicans, alas,
Since the fiscal theory of supply-side economics did not work, the tax-cutting eras of Ronald Reagan and George H. Bush and again of George W. Bush saw very substantial rises in ratios of federal debt to gross domestic product. Under Reagan and the first Bush, the ratio of public debt to GDP went from 33 per cent to 64 per cent. It fell to 57 per cent under Bill Clinton. It then rose to 69 per cent under the second George Bush. Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years (see the Center on Budget and Policy Priorities).
The Democratic leadership must get out ahead of this misleading set of facts and stories. It doesn’t help that they are also adding to the confusion by dissing the Clinton/Gore economic record. Indeed, if any of them would ever get around to reminding the public how good they had it in the 90s, the message would go far. I also remember the Reagan Years. My first house loan came with an interest rate of %16.7. Both my exhusband and I lost our first jobs out of college because of a bad economy. I lost my job at a huge S&L that went bankrupt. He lost his at the Federal Land Bank because of the bad ag economy. The Reagan period was not morning again in America and the Democrats need to step up the game to remind people of that.
Why is it that the Republicans so clearly and convincingly get people to buy the snake oil and the Democrats can event manage to agree on a coherent message? Of course, it would help if they’d stuff that dead racoon of a hairmet in Senator Ben Nelson’s mouth every time he goes rogue, but it would also help if they mentioned how everything was just fine during the Clinton years.
Here let me remind you. The unemployment rate hit a 30 year low in 1999. It was 4.2% and it was low for all groups including
blacks, women and hispanics. (It was 7.3% when he took office). From 1993 to 1999, the economy added 20.4 million jobs. There were also increases in blue collar jobs like construction.
20.4 Million New Jobs Created Under the Clinton-Gore Administration. Since 1993, the economy has added 20.4 million new jobs. That’s the most jobs ever created under a single Administration – and more new jobs than Presidents Reagan and Bush created during their three terms. Under President Clinton, the economy has added an average of 245,000 jobs per month, the highest of any President on record. This compares to 52,000 per month under President Bush and 167,000 per month under President Reagan.
92 Percent — 18.8 Million — of the New Jobs Have Been Created in the Private Sector. Since President Clinton and Vice President Gore took office, the private sector of the economy has added 18.5 million new jobs. That is 92 percent of the 20.4 million new jobs – the highest percentage since Harry S. Truman was President and presiding over the post-World War II demobilization.
We had the fastest and the longest Real Wage growth in two decades. Inflation was the lowest it had been since the 1960s.
Under President Clinton, real wages are up 6.5 percent, after declining 4.3 percent during the Reagan and Bush years. Real wage growth in 1998 reached 2.6 percent — the largest increase since 1972.
Okay, so now, tell me. What policies were highly successful? Which policies lead us to peace and prosperity? Why aren’t we seeing the Democrats today try to reinvigorate the policies of Clinton/Gore instead of putting through legislation that comes from the Heritage Foundation? Why are they even dicking around the Republicans at this juncture?
The Obama apologists wonder why Obama–the greatest things since FDR?–is not getting due credit for all these massively huge bills that his congressional chorus line has passed. Well, it’s the economy stupid! First things should’ve been put first. We got a half assed stimulus bill the same way we now have assed financial reform and half assed health insurance reform. If he’d have put all of his political capital into solving the country’s economic problems (JOBS) first, he’d have had enough to run the gambit on the rest. And I would be willing to bet you we wouldn’t have to wonder why a bunch of half-baked Heritage Foundation plans got implemented under a Democratic presidency and majority.
What is so wrong with so many people that they can’t just point to the Clinton years and say, let’s just do that again? Of all things, why can’t the Democrats take and sell that message seriously?