The Supply-Side Pariah Returns
Conservatives deride Bruce Bartlett, a supply-side economics inventor, as a Keynesian for criticizing their devotion to tax cuts. But circumstances, not his views, have changed, he says—and Republicans should take note.
Three and a half years ago, I stuck my finger in the eye of the conservative movement—of which I considered myself to be part since I joined Young Americans for Freedom in 1969—by attacking George W. Bush for not being a real conservative in my book, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. Now I’ve done it again in my new book, The New American Economy: The Failure of Reaganomics and a New Way Forward.
Naïvely, I thought if I documented my argument thoroughly, stuck to economic issues, and cited many prominent conservatives, they would understand that Bush was leading the Republican Party down the path of certain defeat. If conservatives repudiated the president, I believed, the Republican Party had a chance of surviving the onslaught that would certainly hit in 2006 and 2008.
I really don’t understand why the Republican Party insists on a one-size-fits-all economic policy consisting of more and bigger tax cuts no matter what the economic circumstances are.
My advice was ignored. Instead, I was thrown under the bus. I was fired from my job at a conservative think tank, and the conservative media largely blacked out my book. My publicist was told that orders had come down from on high that it was to receive no mention at Fox News or any other Rupert Murdoch-owned media outlet. Whoever gave that order was very smart. Attacks in those forums, known for their slavish support for Bush, would have helped; ignoring the book was the worst thing they could do to me.
Among the arguments I made in Impostor was that Bush’s tax cuts had only the most superficial resemblance to those based on supply-side economics (SSE), despite repeated assurances from his administration that this was what they were based on.
Well, I know a little about SSE. As a member of Rep. Jack Kemp’s staff in the 1970s, I was one of the people who invented it. (See my 1981 book, Reaganomics: Supply-Side Economics in Action, for details.) Among the ways Bush’s tax cuts violated SSE: They were heavily oriented toward tax rebates and refundable credits that were really just spending programs; the marginal tax rate reductions, which are the only tax cuts that are effective in stimulating growth according to SSE, were modest and phased in over a period of years; and all of Bush’s tax cuts expire next year even though supply-siders always said that only permanent tax changes affect incentives meaningfully.
I’m not here to argue with those who think SSE was hokum in the first place. But I agree with those who hold the view that Bush’s tax policies, whether based on SSE or the tooth fairy, demonstrably failed to build a solid foundation for economic growth. Not only did the Bush administration end with the second greatest economic crisis in American history, but even when its policies appeared to be working, they clearly weren’t doing much to stimulate the economy. Growth in employment, investment, and real GDP were all subpar during the Bush years, even if we disregard the collapse of 2008.
Back in 2007, I wrote an op-ed for The New York Times arguing that SSE should declare victory and then go out of business. Everything that was true about it had by then been fully incorporated into mainstream economic thinking, and all that was left was caricature. Continuing to maintain a separate identity for SSE only created unnecessary conflict with mainstream economists.
I continue to believe that what we supply-siders did was good for the economy, good for the country, and good for the advancement of economic science in the 1970s and 1980s. But during the last 10 years, I think SSE became distorted into something that is, frankly, nuts—the idea 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.
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. The New American Economy is an effort to close it and explain to people why the problems we face in the future are going to require tax increases, not tax cuts.
The continued popularity of SSE among Republicans is doing serious damage to the economy. Last year’s tax rebate was wrongheaded and a complete waste of money that would have been better spent cleaning up the housing mess. I argued this case in another New York Times article, but the Bush administration’s obsession with tax cuts as the sole cure for every economic problem blinded it to alternative policies that might have nipped the housing problem in the bud and prevented the banking system from imploding.
I remain incredulous that serious economists still argue that tax cuts were the only fiscal stimulus the government should have engaged in once the crisis was clearly visible—if it did anything at all. (I explain my opposition to the do-nothing crowd here.) I really don’t understand how tax cuts would have done the slightest bit of good when millions of people have no income because they are unemployed, when businesses have no profits to tax, investors have huge capital losses that will offset all of their gains for years to come, and federal revenue as a share of GDP is at its lowest level since 1943. Given such economic conditions—resulting from a lack of demand, not supply—it’s nonsensical to think that tax cuts would have helped. Indeed, a strong case can be made that the tax cuts included in the stimulus bill were its least effective element.
Many of my friends believe I have abandoned supply-side economics and become a Keynesian, a quite pointed insult among conservatives. But as I try to explain in my book, my views haven’t changed at all; it’s circumstances that have changed. I really don’t understand why they insist on a one-size-fits-all economic policy consisting of more and bigger tax cuts no matter what the economic circumstances are; it’s simply become dogma totally disconnected from reality.
Bruce Bartlett helped develop supply-side economics while on the staff of Rep. Jack Kemp in the 1980s. In 2006 he was fired by a conservative think tank for writing a book critical of George W. Bush from a conservative point of view, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. His new book, The New American Economy: The Failure of Reaganomics and a New Way Forward, will be published in October.