Bruce Bartlett has just released a new book–and a mea culpa of sorts– for supply side economics (SSE). As an ex-aide to the late Jack Kemp and author of a book on Reaganomics, Bartlett’s got an interesting perspective from having a seat near the table. He also takes a few undeserved potshots at some Keynesians that were slow to embrace a few ideas that later proved to be good ones. As an example, Bartlett mislabels the District’s discovery of the importance of monetarism as something that could be credited to supply-siders. Reaganuts frequently try to take credit for that even though credit should rightly go to President Jimmy Carter and his appointment of Fed Chair Paul Volker.
There’s also a bit of clinging to that magical marginal tax rate idea the Laffer curve which has been seriously debunked by empirics during the Reagan and Clinton years. However, I will give the Kemp-Roth tax bill–and hence, Bartlett and his Supply Side–credit for two positive policies. The first was a Keynsian style spending/tax fiscal policy during the last bad recession we had back in the 1980s. The other is the realization that it’s good to provide tax incentives for long term supply curve enhancement. This would be tax credits for re-capitalization for industry which should actually be more part of a national industrial plan, but I’ll just leave it at that. The other would be the idea of tax sheltering money for retirement. 401(k)s were a good innovation. The Clinton administration was also instrumental in sheltering long term savings from current taxes. These two things do help with long run economic growth and capital formation which are lofty and necessary goals.
However, for the little bit of good coming from SSE, also came a lot of bad. I found it interesting that in Bartlett’s piece today he reveals the bad with almost what appears to be relish. That is how most Republicans turned the idea that you can promote long term economic growth with some good, targeted tax policy into the mess that Dubya/Cheney wrought with the frightful combination of tax cuts are good for everything that ails you and deficits never matter as long as you spend the money on wars and enriching the military industrial complex.
During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts–the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.
These incorrect ideas led to the enactment of many tax cuts that had no meaningful effect on economic performance. Many were just give-aways to favored Republican constituencies, little different, substantively, from government spending. What, after all, is the difference between a direct spending program and a refundable tax credit? Nothing, really, except that Republicans oppose the first because it represents Big Government while they support the latter because it is a “tax cut.”
I think these sorts of semantic differences cloud economic decisionmaking rather than contributing to it. As a consequence, we now have a tax code riddled with tax credits and other tax schemes of dubious merit, expiring provisions that never expire, and an income tax that fully exempts almost on half of tax filers from paying even a penny to support the general operations of the federal government.
The supply-siders are to a large extent responsible for this mess, myself included. We opened Pandora’s Box when we got the Republican Party to abandon the balanced budget as its signature economic policy and adopt tax cuts as its raison d’être. In particular, the idea that tax cuts will “starve the beast” and automatically shrink the size of government is extremely pernicious.
It’s a great read for any one that wants to understand the economic policy making of the last 30 years or so. This was the best part for me, the stalwart Keynesian when it wasn’t popular. He actually mentions that Keynes isn’t all about government spending and budget deficits all the time. That is the part that the Dubyas and Cheneys of the world always conveniently or ignorantly overlook.
So basically the book is about the rise and fall of Keynesian economics followed by the rise and fall of SSE. Although the Keynesian part of the book was originally intended to flesh out my model of the rise and fall of economic theories, it turned out to have very valuable lessons for today. Indeed, the circle appears to have come around to where Keynesian theories are now the best ones we have for dealing with today’s economic crisis.
Maybe Bruce, who now writes for the Daily Beast and was fired from a conservative think tank for writing a book that criticized Dubya, has found that with age comes wisdom. Also worth a read are two Bartlett’s pieces from the blog new majority. The first is Tax Tea Party Fantasy from last spring and Why I Am Anti-Republican from late this summer. It seems old dogs do occasionally learn new tricks.
If the U.S. economy was a patient, I’m sure we all would be talking medical malpractice by now. After having 8 years of nothing to lecture on during the Clinton years other than, yes Keynesian economics works, we are now on our 9th year of wtf? (Feel sorry for my poor undergrads.) We’re still dealing with the spinning of the complete failure of Voodoo Economics, Trickle-down economics, Reaganomics or Supply Side economics from the free spending, tax dollar giveaway as success story with no real point other than supporting faith based economic hypotheses and the rights of the ultrarich to stay that way in to something it was not. I simply cannot believe that any REAL democratic administration with some roots in the Clinton years could possibly be choosing to continue the failed policies of the right.
So, since I’ve been on a populist rant over Wall Street Bonuses, let me just fuel the fire some more with this little piece in the Washington Post website today with the unsurprising title “Bailout Overseer Says Banks Misused TARP Funds”. No kidding cupcake. Why do you suppose the same risk happy folks that got their bonuses last year are getting big ones this year? We might as well funded a national road trip to Vegas.
Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government’s financial rescue program.
The report, which will be published Monday, surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts and that 15 had used funds to buy other banks.
So, we’re basically funding a real time game of monopoly. Okay, Republicans, let me just explain this to you ONE more time. MONOPOLY is the antithesis of market capitalism. It isn’t Socialism. Socialism is NOT an economic concept any more than GOD is a Buddhist one. It’s the difference between, I buy houses in Houston and I buy All the houses in Houston. We actually prove markets are efficiently working by comparing competitive markets to centrally planned ones and find the same result when they are. However, that’s IFF (if and only if) things in both circumstances are perfect (which they NEVER are). We live in a land of frictions and 30 years of research shows that we’ve just about got as much chance of having the Pure Capitalist dream as we do the Pure Marxist dream. Zip, Zilch, nada, no way! Our lives our lived in imperfect markets where government sometimes steps in to make things worse, and some times steps in to make things better. We’re basically in the search for the middle path.
Right now, we’re funding and sustaining a financial market structure that perpetuates extraordinary profits for the capital owners, less products available to the market, and higher prices for every one. It is also well-researched that bigger institutions do not bring efficiencies of scale to the market so how is this a good thing? Just pick up any basic microeconomics book and study market structures. The bottom line is a welfare loss for the market as resources will be inefficiently used, quantities will be reduced, prices will be higher, and the demand side of the market will experience a loss of welfare. (Sorry, I keep having to remind myself I have the summer away from theory, but I’m an old dog and that’s a new trick for me.) The empirics on this have supported these theories for hundreds of years!