Is Supply-Side Economics Dead? A Symposium
Bethell, Tom & Barnes, Fred & Ulmer, Melville J. & Roberts, Paul Craig & Bartley, Robert & Reynolds, Alan & Stein, Herbert & Brookes, Warren T. & Anderson, Martin & Novak, Robert D. & Wanniski, Jude & Burton, John & Gilder, Malcolm S. Forbes Jr., George & Hammett, William M. H. & Kemp, Jack & Laffer, Arthur B. & Poole, Robert W. Jr. & Williams, Walter E. & Krauss, Melvyn B.
IS SUPPLY-SIDE ECONOMICS DEAD? A Symposium. As tout le monde must know by now, I like Ronald Reagan. Anyone who can remain debonair while a bullet burns beside his heart is American Spectator...
...But this increase is due more to the recession-with the automatic expansion in "entitlement" program recipients-than it is to the growing Pentagon budget...
...Bradley's bill would eliminate most shelters along with lowering the rate, which is a reasonable tradeoff...
...We were told that there is a tradeoff between inflation and unemployment, that if you wanted less unemployment, you had to accept more inflation and vice versa...
...Still, the melody lingered on in the form of a promise of a conservative free-lunch and that may have helped Mr...
...Supply-side economics boils down to one thing: incentive-making it worthwhile for people to produce more, to innovate more, to save more...
...He has all the supply-side jargon down pat, and his bill dropping the top rate to 30 percent is better than anything the White House is proposing these days...
...Who cares more about taxes, the nation's defense, and busing than the people...
...In particular, there is a great deal of evidence to suggest that in countries following supply-side policies the poor benefit substantially from them-indeed more than when the stated objective of government policy is to promote their cause and increase their incomes...
...A dedicated worker will continue to work anyway, but in areas not subject to taxes...
...Economic journalists throughout the media came to see opposite poles of the profession represented by two varieties within the demand-side branch...
...Just like Jacques Brel who turned up alive and well and living in Paris, supply-side economics is alive and well and living in several Third World countries...
...ROBERT W. POOLE, JR...
...When the economy collapsed into recession, the President's policy managers blamed it on high interest rates due to budget deficits that resulted from Reagan's tax cuts...
...The core of supply-side doctrine is that government is the problem, not the solution...
...M-whatever is not on target...
...Instead, we would lower the tax and regulatory barriers to increased production, while providing a dollar of predictable value, guaranteed in gold...
...Supply-side economics may change a bit, in either form or label, but must ultimately triumph from the sheer absence of serious competition...
...even then, the tax cuts barely matched offsetting tax increases for most taxpayers...
...When fundamental ideas clash, the outcome is never conclusive...
...In that sense supply-side economics still lives...
...Just when its success is becoming apparent, supply-side's most important spokesmen in government seem to have abandoned it...
...Nevertheless, the President's opponents can't argue with results...
...He defended the Bradley-Gephardt bill, which reduces the top marginal tax rate to 30 percent and eliminates most deductions and credits, in supply-side terms...
...Once it dawns on Reagan that he cannot be re-elected on his aides' program of tight money and higher taxes, he will remember that he is a supply-sider too...
...In September 1983, the second anniversary of David Stockman's "September Offensive" which reversed the President's tax policy, the World Bank published a study showing "evidence from 20 countries suggests that those with lower taxes experienced more rapid growth...
...The number of bona fide supply-siders among politicians and economists never was substantial...
...For the means of production are impotent in creating wealth without the men of production, the entrepreneurs...
...What the supply-siders succeeded in doing was to change the focus of debate-away from thinking up new things for government to do and toward controlling the growth of government...
...Thus, the supply-siders called for a program of cutting the size of government and reducing the incentive-killing aspects of the tax system and federal regulations...
...While they complain the program went too far, in many ways it didn't go far enough...
...An attempt by conservative Keynesians to blame the 1982 recession on Reagan's supply-side tax cuts failed to stick...
...Most members of this priesthood are intellectual dinosaurs...
...As the elections of 1980 and 1982 have demonstrated, candidates who espouse the right principles do better than those who don't...
...to spread the difficulties of a recession and inflation...
...The President's policy managers are so terrified of economic growth that every time the economy shows any sign of life, they hit it over the head by raising taxes or interest rates...
...The fiscal-ists, or Keynesians, developed methods of regulating consumer demand through tax and spending policies of the government...
...The very words, "supply side," have all but disappeared from the public prints...
...Only when political incentives are correctly constituted can one reasonably anticipate consistently good economic policies and a thriving society...
...Charles Walker, and Lawrence Kudlow, to name only a few...
...But judged by results, we were miles closer to the truth than President Reagan's critics...
...Reagan get elected, although I think he had plenty of other things going for him...
...Greed is what they called wanting to keep your own property...
...The essence of supply-side economics is that marginal tax rates have a powerful effect on people's work effort and hence on the amount of taxable revenue they produce...
...Leftists wanted economics without incentives because in their world-view people were supposed to resemble ants-willing to work for the collective...
...The confusion is not entirely within the financial press, however...
...The more adept the system is at comprehending, the more rapidly and more penetratingly it will accentuate the socially undesirable at the expense of the useful...
...Nobody can convince me as a political reporter that ordinary Americans do not favor lower tax rates...
...These incentives will be altered virtually beyond recognition...
...is President and Deputy Editor-in-Chief of Forbes Magazine...
...Robert Bartley is Editor of the Wall Street Journal...
...In view of the briskly climbing marginal tax rates through the 1970s, Laffer estimated that a turning point had been reached and passed by 1980, raising an empirical question that will test the skills of future econometricians more than it does the theory...
...we scrapped it in 1968...
...While supply-side activists rightfully point to this, that, or the other distortion, their efforts must, of necessity, be squandered unless they fall on fertile political soil...
...Someday people will also notice that most of the aggregate numbers used by conventional economists are deeply misleading...
...Contrary to the conventional image, the tumultuous economic history of the Reagan Administration affirms the validity of supply-side doctrine...
...What was tried was simply a halt in the seemingly inexorable increase of tax rates over the past several decades...
...If a substantial tax rate cut is the heart of supply-side economics, it has yet to be tried...
...The mythology of supply-side economics is powerful...
...When smiling Ron and the supply-siders arrived they brought hope supported not by arcanum and charts but by good sense...
...The size of that effect depends on what marginal tax rate you start with, how much you reduce it, and how long you wait for the results...
...There has been a tax cut and revenues have not increased...
...To be sure, the share of gross national product consumed by government has climbed several percentage points since Ronald Reagan took office...
...Jones's "gravest fear," Wicker wrote, "is that Kemp-Roth would further drive up interest rates because the credit markets and the Federal Reserve would take it as a signal that the new Administration was no more serious about...
...This federal overspending system is the Achilles' heel of Ronald Reagan's muted experiment in supply-side economics...
...With children, the broad process is called "education" whereas, in later life, "political economy" is the appropriate name...
...The same is true of the great American prosperity of the 1960s...
...This kind of intellectual ferment hardly typifies a moribund school of thought...
...In a Manhattan Institute book published this fall by Chatham House (The Supply-Side Solution, edited by Bruce Bartlett and Timothy Roth) Peter Gutmann supplements the Laffer Curve, dealing with the effect of taxation on the supply of labor and capital, with a "Gutmann Curve," dealing with the effect of taxation on the relative sizes of the legal and subterranean economies...
...The world economy boomed...
...Hence the liberal-left's preoccupation with income redistribution...
...The basic mistake of supply-siders was putting too much emphasis on the efficacy of tax cuts, too little on the damaging potential of an unhinged, non-gold-based monetary policy...
...The more income earned (and hence more taxes paid) the more one benefits from a tax cut...
...All of the low-tax, high-growth economies in the Pacific Rim had impressive public consumption growth from 1960 to 1977...
...This is special pleading with a vengeance...
...The conventional wisdom in Washington and on Wall Street is quite the opposite, indicting the tax cuts for the economic turmoil and saluting the Fed's tight money policy for the recovery...
...JACK KEMP One measure of an idea's vitality is the number of its imitators...
...One might say that supply-sidism contributes to the present reluctance to raise taxes further...
...There is confusion because President Reagan, who became identified with supply-side tax policies in his 1980 campaign and in his early fiscal policies as President, allowed the demand-side monetarists to retain control over monetary policy in his Administration...
...And overpromising by supply-siders didn't help...
...Economic journalists, almost certainly trained in one or the other demand-side schools, have found it difficult to realize that the supply-side school is not an exotic splinter group but one of the two primary pillars of economics, one that had dominated policy-making in the United States from the eighteenth century to the early 1930s...
...and bailouts have become all too frequent for an Administration supposedly dedicated to the principle of market place discipline...
...Melville J. Ulmer is Professor of Economics at the University of Maryland, "Distinguished Associate '' of the Atlantic Economic Society, author of numerous professional books and articles, and contributor to periodicals ranging from Commentary and The American Spectator to the New Republic and the Atlantic...
...Adam Smith, Alexander Hamilton, and Karl Marx, to name a few eminences, were "supply-siders," although I coined the term in 1975 to give the usual term, classical economics, a clearer meaning...
...The dread deficit has turned structural...
...But the most misleading part of this claim is its blind focus on aggregate numbers...
...This is by all odds the worst setback suffered by the supply-side movement...
...The economic experience of the past three years has convinced me that I was wrong and they were right...
...In public life, we have too few political leaders wise enough to ignore, to go beyond, the dead-end advice economic "experts" have been proffering for years with increasingly deleterious results...
...Virtually every prediction by the economic establishment in those years-runaway inflation, permanent stagnation, the death of productivity, tax giveaways to the rich- has proved radically and utterly wrong...
...While I believe a revitalized supply-side model is just emerging to a long period of dominance, into the next century perhaps, it is inevitable that refurbished demand models will return one day for a place in the sun...
...There is also the effect on private incomes...
...William M.H...
...The broader meaning of supply-side economics, however, is of greater import for public policy, and it refers to the recently revived conservative approach to the private enterprise system...
...The father of American supply-siders, Thomas Jefferson, having recognized the important nexus between the pursuit of private interests and the social good, gave a full statement of the legitimate role of government, "a wise and frugal government which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned...
...This new bottle, so to speak, was supply-side economics...
...Or is it that our fatalists are so isolated in the public sector that they are insentient to the rising and falling tides of prosperity...
...A more fundamental factor, to which the Washington Post has called attention, has been the system of fiscal dependency which Congress has built for itself since the early 1970s, in which process broad classes of American society have been transformed into clients of congressional munificence (with other people's earnings...
...tax system has reached the rate at which cutting taxes will increase tax revenue...
...Reagan's tax cut proposals have been great ammunition for congressional and media beating up on the rich...
...The Reagan Administration lost the moral initiative when it let the Democrats out-maneuver it on trickle-down economics...
...Then we moved away from supply-side principles and Depression-based theories came to dominate policy-making...
...The fallout from supply-side isn't all bad, though...
...Between 1970 and 1978, under liberals Sargent and Dukakis, the Massachusetts tax burden grew from twenty-eighth to fifth highest in the nation, rising from 14.2 percent of personal income in 1970 to 17.5 percent in 1978, and from 3 percent below the national average to 11 percent above...
...There's no mystery to any of this...
...The theory of supply-side economics has lasted more than two centuries, and will doubtless survive the latest scapegoating...
...The roll call of practicing politicians who not only carry the supply-side banner but flourish might well be exhausted by listing Rep...
...What an absurd question...
...The level of government spending needed to be cut, and significantly...
...Why, if supply-side economics were not dead, we would have to send all the conventional economists back to their drawing boards...
...Similarly, if we ignore the Laws of Human Nature, summarized partly in Economics, we might turn our economy into a Roman candle...
...Dukakis knows all this, and so far he has been fortunate that the vicious and successful public outrage at his bloated first budget (which contained 3,000 new state jobs) and his aborted April 4 attempt to water down Proposition 21/2 have forced him to "stay" King's basic supply-side course...
...Demand-side tinkering with budgets and money has produced only chaos, with its leading practitioners unsure of even the direction of effects from their rusty tools...
...In my view, the failure to restore stable exchange rates remains a serious threat to long-run growth, which is evident in the squeeze on U.S...
...He (and we) know that since 1979, under Ed King, no other major state economy has more strenuously pursued the Reagan supply-side policies, cutting taxes, curtailing bureaucracy and welfare, slashing regulations-and the results have been positively stunning...
...In short, the supply-siders have succeeded, to a remarkable degree, in changing the way legislators and commentators think about taxing and spending...
...In January 1981, Tom Wicker wrote a column in which he used comments by House Budget Committee chairman James R. Jones as ammunition against the Kemp-Roth tax-rate reductions then under discussion...
...On September 5, ABC called it "the strongest industrial state economy in the nation...
...In Ghana, the average annual growth rate of gross domestic product during the 1960s was 2.1 percent, a figure that fell to 0.4 percent between 1970-1977...
...Tens of thousands of new firms, many of them in high-tech areas such as bioengineering, portable computers, and robotics, have started up...
...It's as if a businessman were ignoring a lucrative market...
...It would be foolish to claim that the original supply-siders were blessed with perfect foresight...
...It is simply a new name for old principles that have worked well in the past...
...While the industries of yesterday may not be renewing their capital, the industries of tomorrow-where the new jobs will come from-are growing by leaps and bounds...
...From May 18, 1981 to July 1, 1982, the demand-siders were quite successful...
...And you only have to listen to Senator Bill Bradley of New Jersey, a liberal Democrat, to know that this has had some lasting impact...
...The report declared that "higher income and payroll taxes almost surely discourage work effort and saving . . . and excise taxes distort economic choices...
...But just because a high priest falls from grace doesn't mean God is dead...
...The policies that flow from supply-side and demand-side theory can often be contradictory, which is what the supply-side theoreticians warned the Administration early in 1981...
...Liberal apologists ascribe all this "good luck" to the "high tech" boom, as if that were a fairly recent and wholly exogenous event...
...These differences carry over into the political arena...
...Such evidence as existed about the size of the work, saving, or investing response to changes in marginal tax rates was all against it...
...The most recent activist buzz words are "industrial policy," i.e., wage and price controls, a new Reconstruction Finance Corporation to allocate credit, subsidies and special taxes for promoting "sunrise industries" and slaughtering "sunset industries," retraining programs and other projects all coordinated in a centralized system of "national economic planning...
...What, then, accounts for Massachusetts' extraordinary good economic health...
...Manuel Johnson, an assistant secretary of the Treasury, would seem to pass all but the most stringent purity test...
...As soon as the inflation rate began to drop, those who had been shedding crocodile tears on behalf of stable money retired to the dressing room and emerged quite implausibly garbed as old-fashioned fiscal conservatives: Oh dear me, they now said, taxes must be restored because of the "frightening" budget deficits...
...a government learning to live within its means without crushing the taxpayer with taxes...
...Not surprisingly, just as our income in Massachusetts had plummeted in the face of a rising tax burden, so our income has soared as the tax burden waned, and by 1982 was back up to 109 percent of the national average...
...The nonsense aspects of supply-side economics arise from the willingness of the supply-siders to forego sound economic principles in the interests of political acceptability...
...Given the liberal-left's view of economic prospects, this future would certainly appear bleak...
...protectionism is on the rise...
...The real question on monetary policy is whether the Federal Reserve's current operating procedures are adequate to do the job of creating a stable dollar...
...Hadn't one heard...
...This charge has all the analytical content of the yelp of a frustrated puppy...
...Though hardly a radical agenda by libertarian standards, much of this tax-rate reduction and regulatory reform has actually been put into place...
...JOHN BURTON Supply-side economics is Janus-faced...
...The noted "conservative" departments-Chicago, UCLA, Rochester, Virginia, and George Mason- have microeconomics as their strongest suit...
...In truth, it is part of his Administration's turn away from populism and toward elitism...
...The only reason supply-side economics is not dead is that the other side has moved to endorse it...
...This of course is the point...
...In 1981, as a Harvard economics professor, he was a self-styled supply-sider and an ardent advocate of tax reduction...
...Today, somehow, the fatalism and pessimism remain heavy in the air...
...Research from the Philadelphia Fed confirms that marginal tax rates were increased in 1980-82...
...They know what seems to help or hurt...
...paid by stockholders in the form of lower dividends...
...FRED BARNES Ask yourself how many candidates for Congress in closely contested races next year are going to bill themselves as supply-siders...
...In other words, tight money...
...The whole episode reminds me of Colonel McCormick and the reporter during World War I. In September of 1918 the reporter sent back a story from France saying that an armistice had been signed...
...During the same periods the Ivory Coast had an annual growth rate of 8 and 6.5 percent...
...As Lyndon Johnson used to say, "Watch what we do, not what we say...
...Moreover, these results have to be achieved in a certain way-by an increase in the incentives to work, save, and investand not in the bad old Keynesian way of stimulating aggregate demand...
...Anyone who can remain debonair while a bullet burns beside his heart is American Spectator material...
...Three years after the Reagan inauguration, and a year after the first net tax cuts in the President's phased-in program, inflation may be contained, and production may be rising...
...And within the framework of both branches there are myriad competing schools...
...Jude Wanniski is President of Poly co-notnics, Inc., and author of The Way the World Works, now available in a revised and updated edition from Simon and Schuster...
...Their stubbornness is understandable...
...The net result was essentially a wash...
...More importantly, has Ronald Reagan been persuaded that supply-side economics is dead...
...This has been true for thousands of years and it will remain true in the future-unless men suddenly adopt the mentality of ants, bees, or termites...
...In the narrowest and most familiar sense of the term, Arthur Laffer's brainchild is simply part of the lore of economics in general, tautological as much of it is...
...Supply-siders really want to do the liberals one better: to create a good and plentiful society...
...Meanwhile, federal spending continued to rise, in large part because of the recession...
...The World Bank reports that from 1960 to 1977 the average annual increase of public consumption in Singapore was 9.8 percent, more than twice that of Sweden (public consumption includes public education, hospitals, and health plus public percent of Singapore's population lives in public housing...
...Graduates of the most famous "liberal" economics departments-Harvard, MIT, Yale, Wisconsin, and, God help us, Massachusetts -have little appreciation for the S & D curves, the symbol of the micro tribe...
...To get proper incentive you need: a stable dollar-something we don't have today and won't get as long as we continue present monetary policy...
...Three years ago fatalism and pessimism hung over Washington, encouraging the refrain that had become the anthem of the Carter Administration, "There Is Nothing That Can Be Done About It...
...and world economy which is driven by a need to enhance production, it being necessary to produce goods and wealth before these can be redistributed...
...This was to "reassure financial markets," which meanwhile had been quite adequately reassured by the apparent shelving of the Friday "money supply" ritual...
...Robert D. Novak is a nationally syndicated columnist based in Washington, D.C...
...Well, is supply-side economics dead...
...Judging by the past performance of public administrators and politicians, the Right contends that such a policy would stifle and frustrate private markets, mutilate private business, and severely limit if not obliterate individual freedom...
...Our President is for liberty...
...In the first place, most of the 1981 corporate tax-rate cuts were rescinded in 1982, giving them very little time to operate...
...There may also be people who oppose tax-increases because deep in their subconscious is the trace of supply-side economics...
...The most familiar of these concerns economic stabilization...
...ROBERT BARTLEY Is supply-side economics dead...
...Back-and-forth bickering over balanced budgets and the like obfuscates the profound agenda of reestablishing a society where people are held responsible for their own actions and are provided the full authority to alter their circumstances-where government in its most minute aspects is of the people, by the people, and for the people...
...The Mellon tax cuts of the 1920s were portrayed as a giveaway to the rich...
...But there is a deeper reason for the hostility to supply-side economics...
...Supply-siders since Adam Smith have stressed that the wealth of a nation depends upon its people-their energy and especially their intelligence...
...The only way to help the poor is to promote economic growth for all...
...1. Supply-side economics made a few people rich, famous, or influential...
...Whether we call them parachutes or anti-gravi-tators, we had better acknowledge gravity or wind up, as they say in the profession, as Roman candles...
...Instead of being about supply-side microeconomics, most of the important economic controversy today is among supply-siders, and it concerns the disorganized state of demand-side macroeconomics...
...The new rationale for reviving the old ideas of Hoover Republicans is that flaky estimates of future deficits raise interest rates and also make the dollar too valuable abroad and too cheap at home...
...All that it takes is adroit management of the nation's aggregate demand...
...That didn't mean that it was impossible but only that it was highly improbable...
...The monetarists, or Friedmanites, argued for monetary policies that would alter the flow of cash through consumer pockets...
...To put it bluntly, Massachusetts may well be the best performing state economy in the world...
...MALCOLM S. FORBES, JR...
...As of fiscal 1982-83, it stood at 14.4 percent, a full point below the national average that has stabilized at 15.5 percent...
...The Reagan tax cuts of 1981, though too little and too late, are still responsible for the pace of the current economic recovery...
...People pay taxes...
...Looking only at aggregate demand, they see higher taxes as government's way of fighting inflation...
...A growing tax haven "problem" is causing government agencies to consider policies such as forbidding direct air travel to designated tax havens, requiring exit visas from U.S...
...Cheer up, Mike...
...In the anthill there was no "greed...
...Last year, he made points by arguing that "Reaganomics is taking this state's economy apart job by job...
...Ghana is a socialist, high-tax-rate country, with a top marginal rate of 75 percent at $12,552...
...When socially useful actions are taxed and socially undesirable activities are subsidized beyond what is natural, behavior will be altered so as to diminish the socially useful and expand the socially undesirable...
...In the long term, growth can be achieved only if the incentives for economic dynamism are sufficient...
...This was pleasant for the President to hear...
...Since, depending on what list you read, countries as geographically accessible as Canada, Mexico, Austria, and Costa Rica are considered tax havens, and Great Britain and France have enacted commercial secrecy acts that may make them tax havens too, it has become clear that passing laws and regulations can no more stanch the flow of American capital overseas than it can stop the growth of the underground economy at home...
...I find this a curious question because what it implies is so much at variance with what is...
...No one any longer can seriously doubt that when you tax something you get less of it, and that when you subsidize something you get more of it...
...Now, both the state and, presumably, Dukakis understand why...
...Higher national productivity means in turn that the need for any given level of government expenditure, hence revenues, would diminish...
...Sometimes there was a problem and pumps had to be primed...
...Some supply-siders-I can think of particular individuals in the Reagan Administration-said slow, measured growth was what they wanted...
...Hobart Rowen and others did their best to rid themselves of the specter haunting economics, the specter of incentives, by calling it an untested theory...
...A recession, the political effects of which should not be underestimated...
...Reaganomics now faces the internal competition of Stockmanomics and Feldsteinomics...
...The three-year personal income tax rate reduction has been maintained and next year will see indexing of the tax brackets to preserve those gains...
...The economy underwent its worst contraction in half a century...
...Naturally, while living under such circumstances it is hard to stay in touch with the rest of us...
...Supply-side economics in this sense holds that if tax rates are raised high enough they will seriously impair savings, investment, risk-taking, and work effort, ultimately reaching a point at which further tax increases actually reduce total tax revenue...
...To paraphrase Richard Nixon in 1972, "we are all supply-siders now...
...The promise of demand-side economists, both Keynesian and monetarist, was that they could gradually reduce the growth of nominal GNP (spending) by regulating budget deficits and money supplies...
...In its simplest form, taxes cum subsidies alter individual perceptions of natural attractiveness...
...Instead of a balanced budget, we got record deficits...
...The Right points to the liberals' dismal up-and-down record, especially the unprecedented 13 percent annual inflation and 8 percent unemployment reached under Jimmy Carter...
...Together, these two leading critics of Reaganomics advocate the policies of Nixon and Carter-ever-increasing tax rates and an ever-weaker dollar...
...Three years into his first term, however, the high priest has fallen from grace...
...If the recovery stays strong and endures for a few years, perhaps folks will change their minds and credit supply-side economics...
...Attractive activities, because they furnish the provider with rewards, increase, while unpleasant actions are shunned...
...It will take Democrats to lower tax rates...
...Those who claimed that the onset of the 1981-82 recession "proved" the failure of President Reagan's program, which had not yet begun, now go to outlandish lengths to "prove" that subsequent economic recovery has nothing to do with his policies...
...The idea that President Reagan reduced tax rates dramatically, thus providing a real life test of supply-side economics once again, is even more widely held but just as wrong as the preceding two ideas...
...it redistributes taxpayers...
...It is his own advantage, indeed, and not that of society, which he has in view...
...Supply-side strength is inherently populist, not elitist...
...Economic growth, in other words, can proceed without limit...
...Thomas Malthus, John Maynard Keynes, Milton Friedman, and Paul Samuelson are among the eminences in the demand-side school...
...It will be a long time before another Jimmy Carter can propose, with a straight face, that jacking up the rates on capital gains is a "tax reform" measure...
...Thus we have millions of Americans working in the shadows of the underground economy...
...But sad to say for socialism, you can't form capital without capitalists...
...In July, when the national unemployment rate dropped from 10.0 percent to 9.5 percent, Massachusetts dropped from 6.9 percent to 5.9 percent, nearly 40 percent below the nation...
...He got Business Week to declare him "a supply-sider" and used the occasion to proclaim that the "recovery will shrink the deficit"- the Treasury's position that he had ridiculed while at OMB...
...Of course, public consumption is not the only way supply-side growth can help the poor...
...This increasing complexity has caused representative democracy as we know it to collapse under the weight of its outmoded system of misplaced incentives...
...As Lester Thurow has happily explained, a no-growth society is a zero-sum society...
...It is an immutable fact of life-and the core of supply-side economics- that if an activity is taxed we see less of it and if an activity is subsidized we see more of it...
...If supply-side in the broader sense ever dies, it will be the death of private enterprise too...
...By the time Candidate Reagan started to talk seriously about economics, in September 1980, he began backing away from supply-sidism...
...Two days later he sent him another cable: "Your story still exclusive...
...Even economists of modest attainments have known that marginal tax rates, when they move up and down, affect people's behavior...
...If simply stopping the increase in tax rates, while continuing to run massive deficits, can produce these kinds of results over a fairly short period, think what we could accomplish if we controlled the growth in federal spending so that the deficit were eliminated, actually cut the overall tax rate, and then held to those policies for enough years so that people would believe we were serious...
...The Republicans will face the same divisions that split them in 1980, over fiscal and monetary policies, with supply-siders pressing for further production-oriented tax policies and an abandonment of monetarism altogether...
...Income tax rates are now, and will continue to be, the crucial determinant of economic rise and fall...
...To add insult to injustice, on Tuesday, September 6, Dukakis learned that Massachusetts per-capita personal income was now up to tenth highest in the nation, at 109 percent of the national figure, six points higher than the 103 percent figure which he had left to Ed King in 1978, the weakest in two decades...
...New stock issues have set a record since the tax cut on capital gains...
...Supply-side economics says that if you increase the return on effort and reduce the return on leisure then people will increase their work and reduce their leisure...
...Adam Smith's philosophy, not to be confused with that of those at the White House who wear ties featuring his picture, is precisely this: "Every individual is continually exerting himself to find the most advantageous employment for whatever capital he can command...
...In August, that rate dipped again to 5.8 percent...
...Supply-side economics is almost never described as one of the two basic branches of economics, but rather as a single idea that flows from the supply model, the idea that under certain conditions tax rates can be reduced and so stimulate production that the tax base and tax revenues will actually increase...
...Singapore is an example of a low-tax-rate, capitalist-oriented economy...
...Jack Kemp and Lewis Lehrman...
...The main beneficiaries of tax cuts are ultimately the country's main suppliers-labor...
...Supply-side economics may be dead within the Reagan Administration, but it is alive and flourishing among the Democratic opposition...
...Supply-siders should have thought of that...
...Yet, by whatever criteria we use, the economic performance •after 1968 has been a lot worse than before...
...As for monetary policy, these "supply-siders" always supported the elitist notion held by the governors of the Federal Reserve system trying to fine-tune the economy and stabilize the dollar by calibrating the money supply...
...Correlated with bracket creep, the subterranean or underground economy has been growing at explosive rates...
...In fact, the "Ml" money supply grew at a seemingly adequate 6 percent rate from early 1981 to mid-1982, ending up $5.8 billion higher than the Administration's monetarists had originally planned...
...All polls indicate that they also intuitively favor a gold-based dollar, an amazing judgment considering the lack of serious public debate on the subject...
...conservatives," with some important exceptions, are concerned with the individual, with wealth maximization, and this allows them not to focus on the needs of society...
...It is safe to say this is not going to happen, so we can conclude that supply-side economics has a secure future, although it will no doubt be called something else in the years ahead...
...I can identify four senses in which an idea like supply-side economics may be said to live or die...
...That's no more than a truism, and the only legitimate quarrel can concern the exact location of the critical turning point-which itself depends upon time, place, and attendant circumstances...
...Melvyn B. Krauss is Professor of Economics at New York University and Senior Fellow at the Hoover Institution, Stanford University...
...The experience of the past three years clearly points to the program needed for long-term economic recovery...
...So high tech alone has not been a panacea...
...Yet the global dollar economy fell into a horrible deflationary contraction, with massive liquidation of inventories and assets at distress-sale prices...
...This implies two strikingly different approaches to government finance: public expenditure financed by economic growth with low tax rates, or by a stagnant economy with high tax rates...
...its greatest liability today is his disaffection...
...RET MARTIN ANDERSON Is supply-side economics dead...
...Yet the press continued to write as though events were moving in the opposite direction, and as though economic expansion was inherently dangerous...
...the Ivory Coast is capitalist, low-tax-rate, with a top marginal rate of 37.5 percent at $20,922...
...To judge by the rhetoric coming out of Washington, one would think so...
...Back in 1981 when the Fed was collapsing, the economy with one of the tightest monetary policies in the postwar period, David Stockman and Larry Kudlow, the divinity student and the historian who were making economic policy in the Office of Management and Budget, denied that money was tight...
...was 59.8 percent, and the best Japan has ever done is something like 55 percent...
...It has one face grounded in economic wisdom, and another based on a combination of dangerous optimism and political marketing...
...It means unlearning what we learned in our college economics courses...
...There were 7,000 fewer Massachusetts unemployed in the 1983 "Reaganomics Recession" than in the 1978 "Carter Boom...
...In fine, I see in him but one shortcoming...
...Finally, today, other high-tech states-California, North Carolina, Texas, and New York-are performing far less effectively than Massachusetts...
...Were the supply-siders wrong...
...It didn't happen, but still can...
...This constellation of effort-and-reward association provides the underlying rationale for classical economics-now called supply-side economics...
...in India, for this same period, the comparable figure was negative 0.67 percent...
...The bad news was that taxes did not go down...
...Like gravity the Laws of Human Nature will always, for good or for bad, be with us...
...Yet, in the face of this public mood, the Reagan Administration seems determined to go into its second term requesting tax increases and defending fiat money more tightly managed by the Fed than ever before...
...Is supply-side, then, still alive...
...Per capita gross national product increased at an average annual rate of 1.3 percent in India between 1960 and 1977...
...It's breathtakingly superficial, but most people have no deeper an understanding of economics than that...
...it's the term that has caused all the confusion...
...Here is just one illustration of the way the anti-supply-side argument ran almost three years ago...
...Sure, you can blame the Fed for implementing the policy poorly, for allowing wild gyrations in money growth...
...But please don't tell me it's economics, and above all don't bring it back to the White House...
...This is the main reason why Reagan-omics has degenerated from a coherent set of policies geared to promote economic growth to a virtual tautology...
...The monetary crunch was just too much...
...But at any moment, one or the other will dominate policy-making...
...Not only was the August unemployment rate the lowest in the nation, it was actually a half-point better, in the midst of a national recession, than the 6.4 percent rate which Michael Dukakis left to Ed King during the national economic boom year of 1978, and 2 points lower than the 7.8 percent Dukakis averaged in his first term (1975-78) when Massachusetts was consistently the worst state economy...
...HAMMETT Whether or not supply-side economic policies have died, supply-side economics-explorations of the effects of tax policy on revenue-is definitely alive and working...
...It is an assertion that a large across-the-board reduction of individual income taxes in an economy of continental size (i.e., not Puerto Rico) will promptly result in an increase in revenue or at least in an increase in total revenue plus saving...
...Allthis, mind you, in spite of a 35,000 drop in state and local government" employment from 1980-83...
...Those people are still rich, famous, or influential...
...Certainly that was the official policy of the Reagan Administration...
...Tax cuts are tantamount to dereliction of duty...
...4. Last and least is the question of the validity of supply-side economics in the specific quantitative sense that I described at the outset...
...All Reagan did was stop the rates from rising...
...Supply-side policies, however, have been victorious only when the forces of growth outweighed the political interests in redistributing the "difficulties" arising from destructive policies...
...We are said to be on the sunny side of the Laffer Curve...
...That's the real message that supply-side economics has uncovered...
...The alternative is to establish a stable environment for economic growth on the private enterprise supply-side through lower taxes, a steady but moderated expansion in the quantity of money, and a contraction of the public sector including social spending...
...Big-spending politicians, brought up on Keynesianism, see things differently...
...the good news was that taxes did not go up...
...People are going back to work...
...But the sup-ply-siders can say that the time has been too short, that there has been a recession, and that the tax cuts were too small (as Keynesians used to say about deficits...
...Yet the tax cuts were trimmed and delayed until after the monetary brakes were applied, causing a recession...
...Yet its contents are as old as the hills, namely the idea that government activity can have an influence on incentives to work, save, and invest...
...Nonetheless, it is astonishing that most of our political leaders haven't grasped supply-side policies...
...We hadn't been that high since 1972...
...And the balance of trade shows that foreigners are shipping us goods and services in return for mere paper...
...Business supplied, as measured by profits, $323.4 billion...
...A strong economic recovery has begun, led by the housing and auto industries...
...Supply-side neo-Keynesians worry about the deficit, supply-side monetarists worry about the money supply, and "classical" supply-siders put forward the case for fixed exchange rates based on gold...
...In Africa there is the case of two neighbors-Ghana and the Ivory Coast...
...The Senate Committee staff study mentioned earlier was issued in February 1983 by the Permanent Subcommittee on Investigations of the Committee on Governmental Affairs, and the writer for the July International Currency Review had this to say about it: . . . there is a tendency to muddle justified disapproval of corruption and abuses, including wholesale laundering of narcotics proceeds through corrupt banking relationships, with the efforts of otherwise honest citizens to protect their wealth, and to keep it out of the clutches of the avaricious agents of an overspending and (many believe) increasingly arrogant state apparatus...
...But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society...
...And the latter is still the focus of much of the debate on Capitol Hill...
...Better still, the collapse of the stock market provided us with a once in a lifetime license to steal...
...I mean by "supply-side economics" what I have elsewhere described as "punk" supply-sidism-that is, an extreme and bizarre exaggeration of a perfectly good, old idea...
...Fred Barnes is National Political Reporter for the Baltimore Sun...
...Over the past year, I have had the opportunity to question the President at two White House breakfasts with journalists...
...After World War II, we put in sensible rules for money with Bretton Woods...
...And this growth in venture capital investment is directly traceable to the reduction in individual income tax rates pushed through by the supply-siders...
...Its greatest asset in 1981 was Reagan's enthusiastic support...
...It offered an unparallelled buying opportunity for the investment of our rising royalties and lecture fees...
...According to such noted liberals as James Tobin, an increase or reduction of taxes and interest rates at just the right time and by the right amounts will smooth out business cycles on a high plateau and perpetuate "full employment...
...It is a hallmark of leftist ideology today that it always wears the cloak of pragmatism: for one reason or another the idea under attack is found to be currently inappropriate, unworkable at the present time, and so on...
...On December 2, 1974, President Ford remarked that "we ought to tax the wealthier people...
...Finally, people had expected rapid inflation to go on forever...
...Volcker was putting his thumb on the patient's windpipe...
...You just do not encounter a lot of normal people in his line of work...
...Demand-side theory begins with the assumption that the consumer, "the demander," is the dominant actor in the economy, and that demand creates its own supply, i.e., producers will produce what consumers demand...
...Paul Craig Roberts holds the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies, Georgetown University...
...So the lefties were intensely irritated by the restoration of all this talk about incentives...
...According to the Department of Commerce, our national income in 1981 was $2,343.7 billion...
...The hope of classical supply-side economics was to move the Republican party away from that sort of divisive sharing of austerity...
...At one time, I thought supply-side pioneers Jude Wanniski and Arthur Laffer pedantic for insisting that "hard money" is inseparable from tax reduction...
...The reason the press corps has had trouble on this point is that demand-side theory has dominated policy-making in the United States for about forty years...
...The key to good government is to be found in the rights of the people to referend and amend without obstruction at all levels and in all branches of government...
...The Laffer Curve lives...
...If excellence is not the norm at the very top, political corruption will guarantee that natural incentives will not survive...
...What is a bona fide supply-sider...
...Otherwise, there is no news in Supply-Side Economics...
...The "structural" budget also turned quite "stimulative," by Keynesian standards...
...Quiz time: fill in the two missing words...
...In the years ahead, the relative obsolescence of demand theory will be more evident, as will the dominance of the modern supply model...
...It is now estimated conservatively at between $100 billion and $200 billion a year-and an article in the July International Currency Review is not so conservative: In 1981, Simon and Witte gave a figure of $330 billion, which is the number taken as "correct" by the Senate Committee's staff study-implying that the current level of the underground economy would be of the order of $400 billion...
...He views the world without flinching and is duly amused...
...This refrain we still hear today, and we will continue hearing it until next year's indexing of the income tax brackets is rescinded...
...GEORGE GILDER Remember the summer of 1981...
...These confusions are being clarified as the press corps itself becomes better versed in the differences between the schools and the policy implications...
...MELVILLE J. ULMER The insistent claim of the liberal-left that "supply-side economics is dead" reached near hysterical pitch when last year's recession scraped bottom, and it has not abated despite the business recovery...
...He concludes by pointing out that even when we combine both effects, we cannot predict with certainty whether the U.S...
...Furthermore, Massachusetts has been a high-tech state since the early 1950s, when Route 128 was already known as "high-tech highway...
...In monetary policy, he advocates national and international monetary reform linking the dollar and gold in an anti-inflationary but not deflationary system...
...To conclude, the moral justification for a free-market approach to global economic development is that economic growth is the best way to help poor people...
...This, then, is the highest item on the supply-side agenda...
...A few die-hards are still trying to paint supply-side tax cuts as failures...
...So did the Council of Economic Advisers...
...Not only did the triumph of the Reagan program exceed most expectations-thus assuring the fulfillment of the supply-side vision of the Roaring Eighties to come...
...Granted, this isn't a totally fair-minded assessment of supply-side economics...
...The strongest Massachusetts employment growth since 1981 has actually been in non-high-tech jobs, while high-tech itself has been mired in a minor slump...
...By those standards, apostate supply-siders such as Feldstein, Jones, Walker, and Kudlow were never true supply-siders in the first place, on fiscal much less monetary grounds...
...But, horrors, the statistical yardsticks are awry...
...The demand-siders in the GOP wish to restrain aggregate demand through tight fiscal and monetary policies...
...This principle required reasserting, if growth was to be resumed in the West...
...With the housecleaning at EPA, the rescinding of much of the corporate tax cut, and continuing concern over $150-200 billion deficits, hasn't the supply-siders' hour passed...
...The basic premise of supply-side economics is that incentives matter...
...The President's failure to embrace supply-side monetary policy, on the other hand, permitted the Federal Reserve Board-produced recession to persist and now threatens to abort or at least slow the economic recovery...
...WALTER E. WILLIAMS We not only got a new man for the White House in 1980, but the new man brought in some old wine in new bottles...
...Supply-side, then, would seem to be all but dead, its faddish popularity of two years ago replaced by a tiny elite keeping the flame despite the failure in practice of its policies...
...Both have always existed and both will exist forever...
...Tell a worker that his property rights will be denied to the tune of a third or more of his earnings, and you can expect less work...
...a regulatory environment that is not hostile to or biased against the private sector...
...The reason The American Spectator poses the question about the vitality of supply-side economics is that the nature of the theory has been misrepresented in the popular press...
...or the deficit will be financed by recourse to money expansion and inflation or by heavier sales of government bonds leading to higher interest rates...
...Because of the shattering experience of the Great Depression, we were taught that an economy cannot be left to its own devices, that it won't work without the government's taking an active hand in managing, stimulating, manipulating, or fine-tuning economic activity...
...The immediate reason is that until recently the Reagan program looked like a flop...
...The idea that supply-side economics was something new, while fun to write about, also was not true...
...Within one quarter after taxes were raised, the deficit doubled...
...Although it is unclear which side will win majority support in the next election, it seems certain that the war between the two -Left and Right, demand-side and supply-side-will persist over four related issues...
...In fact, Massachusetts is now employing almost 64 percent of its adult (over 16) population...
...Tom Bethell is The American Spectator's Washington correspondent...
...No person should be disenfranchised from the electorate...
...Indeed, the Administration's support of the Third World bailout via the IMF may go down as the worst example of its backtracking from original principles...
...Such outright disregard for the legitimate authority of the people further perverts incentives...
...investment income is minimally taxed...
...Understanding of the classical liberal principle that people will provide goods and services only if given the incentive to do so was then replaced with the belief that government could conjure up growth and employment by injections of demand into the economy, via fiscal and monetary policy...
...Arthur B. Laffer is the Charles B. Thornton Professor of Business Economics at the University of Southern California and is a member of the Economic Policy Advisory Board to the President...
...Other names in the Administration do not come easily to hand...
...Its top marginal rate on personal income is 45 percent at $185,185, according to Price Waterhouse...
...Cut corporate taxes and people's taxes are cut...
...In fact, Massachusetts' total employment in August 1983 was almost 180,000 higher at 2,832,000 than the 2,653,000 who were at work in August 1978...
...Jack Kemp is U.S...
...Anything the Reagan Administration does-and shouldn't do-has become Reaganomics...
...The gold feature of the post-World War II Bretton Woods international monetary system was cast as an anachronism...
...James Jones, Dr...
...Supply-side economics in the sense that caused all the excitement between 1976 and 1980 and that prompts the present search for the body is a specific quantitative proposition...
...Most important, the nucleus for its revival is not the small circle of priestly true-believers but the intuitive support of the masses...
...In other words, "trickle-down" works, David Stockman notwithstanding...
...The facts ought to be as embarrassing as the theories...
...Martin Feldstein...
...The idea that supply-side economics would provide an instant, large increase in government tax revenue by reducing tax rates was simply not true to begin with, so it is not too surprising that it did not occur...
...But if supply-side economics contributed to Reagan's election, it lives while the Reagan Administration is in office...
...In fairness, such policies did briefly reduce budget deficits in 1973-74 and 1978-79, but the result was scarcely the promised reduction of either inflation or interest rates...
...People are the sole comprehensive perceivers of the total impact of governmental policies...
...They see physical shortages everywhere- in oil, food supplies, minerals, water, oxygen, and space...
...Our President has done better than most of his predecessors, but I expect that after nearly three years at 1600 Pennsylvania Avenue Ronald Reagan is finding it ever harder to keep up with what the rest of us think...
...The sad thing is that Ronald Reagan and David Stockman don't seem to notice...
...Our political system has grown more and more complex...
...And while any tax increase would be regrettable, it's noteworthy that those proposing increases are being forced to consider their adverse effects on economic growth...
...So-called corporate taxes are paid by consumers in the form of higher prices...
...When the economic recovery that they refused to forecast showed up anyway, the President's men would not let Reagan take credit for it and warned that it would soon go away...
...Two years ago, liberal Democrats pooh-poohed the notion that you can collect as much revenue at lower rates from a broader tax base as at higher rates from a narrower tax base...
...So drastic a thinning of supply-side ranks is accompanied by the indictment and conviction of the 1981 tax cuts for causing the worst recession since the Great Depression...
...Not true...
...In fact, the press is usually not this clear, choosing to characterize supply-siders as simple-minded tax-cutters...
...The highest figure ever reached by the U.S...
...But there is more to supply-side economics than tax cutting...
...The benefits from low-tax, high-growth policies do more than trickle down to the poor- they gush down upon them...
...Unfortunately for the myth, what is believed to be new is very old economic theory and very little of what the theory called for was actually done...
...What do you mean by "supply-side economics" and in what sense can an idea be said to die or live...
...This is the sum of good government...
...citizens planning to go there, and disallowing tax deductions for travel to such places, as well as discriminating against international banks that do business there...
...Will Reagan be perspicacious enough to grab them again as he did in 1980...
...ROBERT D. NOVAK The decline of supply-side, both as a catchword and as a political movement, in little more than two years is illustrated by the metamorphosis of Dr...
...And since many established economists continued to predict a new Great Depression, there was a continuing need to explain our ideas to still baffled audiences of financiers, market analysts, Keynesian economists, reporters, pundits, and others who stood obtusely aside while the market sunk, scores of dazzling new companies emerged, and business prospects, in general, soared...
...What is one to believe, the economists' doodlings, or what is actually happening in the real and financial sectors...
...To an increasing number of people, supply-side economics represents a bold, new economic approach that was fully implemented by the Reagan Administration, a new chapter in economic policy that we can now evaluate before deciding whether or not to continue...
...Kennedy got away with similar cuts because they were trussed up in Keynesian garb...
...Everything was planned and scientific...
...The Federal Reserve pursued an unnecessarily nasty credit crunch, driving down the prices of farm and industrial materials at a rate that resembled 1932...
...The simple answer to that is no...
...Herbert Stein is the author of the forthcoming book, Presidential Economics...
...The supply-siders have been most vocal in this process of reasserting the classical principle...
...During 1981-82 he was Assistant Secretary of the Treasury for Economic Policy and is credited by President Reagan and Treasury Secretary Regan for passage of the Economic Recovery Tax Act of 1981...
...As I tap out these lines Martin Feldstein, the President's chief economic adviser, has raised his estimate of our economic growth for this year to 6.5 percent, up from his predictions of 5.5 percent in July and 3.1 percent in January...
...The Depression discredited a lot of worthwhile things...
...And insofar as anyone, including the Administration, has invoked a theory for not raising taxes more, the theory has been Keynesian, not supply-side...
...Walter E. Williams is Professor of Economics at George Mason University and author of The State Against Blacks (New Press/McGraw Hill...
...They are wise enough not to call it supply-side...
...All else is the economics of Masoch and Sade, Christopher and Gay, still popular, I hear, among consenting adults (and bamboozled children) in the Ivy League and on Capitol Hill...
...Even technological advances have passed the cutting edge of diminishing returns...
...Not necessarily...
...We all heard the wail, "Tax cuts for corporations and the rich...
...If you put "budget deficits" or "reducing deficits" you go to the bottom of the class...
...No one out of the closet is recommending a tax cut to raise revenue and reduce the deficit...
...This was the basis of Brazil's widely acclaimed "economic miracle...
...Most men have not yet been "saved," and so they suffer from that devilish desire to keep all or most of what they earn...
...deregulation of American business has been short-circuited...
...India is a high-tax-rate, socialist-oriented economy...
...Supply-siders attract such intemperate assault only because they observe that such demand management cannot possibly work...
...This Keynesian precept was only ever true of the short run...
...Politicos want votes and the public wants economic growth...
...That's all well and good, you may say, but tax cuts and regulatory reform are no longer where the action is...
...Experience in the past two years has not added much to our knowledge on this subject...
...David Stockman's remarks in the Atlantic and the Administration's inability to overcome them have reflected a basic lack of sympathy for what supply-side economics is supposed to be about...
...On February 23 when I asked him about a return to the gold standard that he once advocated, Reagan was unencouraging and said: "There does seem to be more sentiment against it in this modern day than there is for it...
...Is it fixed exchange rates...
...Even Ronald Reagan in his most recent public utterances seems to have lost faith, the prospects for his second-term economic policy moving in an opposite direction...
...And it's interesting that income-tax revenue collections from upper-bracket taxpayers increased when the top tax rate was cut from 70 percent to 50 percent...
...The third area concerns the future of our nation's "poor...
...Some, but by no means all, think so...
...You do encounter a lot of magicians, and one of the great magic acts of the past three years was to turn something as sensible as supply-side economics into a monster and then to make the thing evaporate just as the economy revived-hesto presto, supply-side economics had vanished from the public discourse...
...Consequently, the "poverty gap" in Brazil-the amount by which incomes of the poor would have to be raised to bring them to the poverty line-was reduced by 41 percent between 1960 and 1970...
...export industries caused by the rising exchange value of the dollar...
...To judge by the rhetoric, yes...
...It took time for businessmen and consumers to adjust to the startling fact that this wasn't so...
...On the basis of the Laffer Curve they argued that it would not be necessary to bite the bullet of reining back government spending...
...They move from productive work and investment into real estate finagles, accounting pettifoggery, jurisprudence, yachts, politics, Mercedes, offshore resorts, and Aspen Institute seminars on the unfairness of capitalism...
...The press corps understandably characterized supply-side as a fiscal idea, one that could somehow be compatible with monetarism...
...Excellence must start at the top of the political hierarchy...
...John Burton is a Research Fellow at the Institute of Economic Affairs in London...
...Malcolm S. Forbes, Jr...
...The Federal Reserve tried to go along on the monetary front and look what happened...
...The second area of conflict concerns the longer-run prospects for economic growth...
...There has been no proliferation of agencies and programs in search of problems these past three years, nor is any in prospect...
...Finally, Larry Kudlow, who had helped Stockman discredit Reagan's supply-side policy, changed sides again...
...Government has gotten so large and intrusive that it has killed off incentives...
...Instead, the focus of debate is on getting the deficit under control, through some combination of spending cuts and tax increases...
...In fiscal policy, he advocates reduction of marginal tax rates as an incentive to reinvigorate the entrepreneurial spirit and thereby ensure a vigorous economy...
...I'm not rich but last April 15 it dawned on me that I was supporting three American families plus purchasing my share of nukes...
...Without a serious reining back of government spending in the U.S., the economic recovery now proceeding is likely in time to be choked off...
...A system's ability to gauge the dynamics of an action-reaction sequence in conjunction with incentives and, then, provide proaction determines the degree to which that system achieves success or, in some instances, literally survives...
...Not only is this an all-time record for the state, it is a record for the nation...
...The supply-side and demand-side schools will be much in evidence in 1984 during the election campaigns...
...In the Keynesian Era incentives weren't mentioned...
...The owners of capital supplied, as measured by interest income, $25 billion...
...During the 1960s, Brazil achieved a high rate of economic growth compared to other Third World countries...
...Federal Reserve policy has been misguided, too...
...The reason for the disparity was economic growth...
...The Chicago Tribune headlined it and McCormick sent the reporter a cable: "Your story exclusive...
...It would knock down the rate of inflation, while the tax cuts would stimulate a burst of economic growth...
...Massachusetts was also a high-tech state in 1975 when, in the previous recession, its unemployment of 11.3 percent was the worst of any state, and in 1978 when its personal income growth was third-worst in the nation and its employment growth was only 60 percent of the national average...
...Congratulations...
...Cuts in tax rates would raise total tax revenues, so that there need be no fear of a ballooning deficit, or of the need to tackle government overspending...
...The Democrats are moving toward embracing the Bradley-Gephardt flat-tax bill, an approach that Senator Bradley of New Jersey willingly concedes is a supply-side one...
...His embrace of supply-side thinking is proof that the supply-side dream hasn't died...
...Just relax and enjoy it...
...Since 1978, with the help both of the King administration's tax and spending caps and Proposition 21/2 the Massachusetts tax burden has fallen dramatically...
...investment income is severely taxed...
...Inflation and interest rates are down sharply, the value of the dollar is up, unemployment is finally beginning to ease, and real economic growth is positive and strong...
...a tax code that rewards and encourages success rather than punishes it...
...Thus, there will be a reduction of the budget deficit, or an increase of the deficit that is smaller than the increase of savings...
...An obvious consequence of the Fed's deliberate recession was severe strains on the budgets of governments everywhere, as well as the budgets of private households and firms...
...I never figured out what a supply-side monetary policy is...
...The Left has maintained-and still maintains, despite all evidence to the contrary- that it knows how to create and sustain full employment, and to do so without causing devastating inflation...
...I'm stopping short of saying that supply-side economics was done in by its own monetary policy...
...many wouldn't be so hesitant...
...He is not alone...
...The importance of incentives in motivating the supply-side of the economy was neglected during the drowsy heyday of Keynesianism...
...Its top marginal rate is 60 percent at $12,000...
...The ill effect of high marginal tax rates, indeed the whole debate about incentives and disincentives, was foisted on the national agenda by supply-siders...
...Even some liberal Democrats realize there is something to tax cutting...
...and then some jackass had to put spotlights on his lawn...
...In 1983, as chairman of President Reagan's Council of Economic Advisers, he rails at supply-side "extremists" and lusts for tax increases...
...This has been a well known, integral part of economic theory for a long, long time...
...Actually, the defection of the political and intellectual elites from supply-side ranks is more apparent than real...
...Representative from the 31st District, Buffalo, New York...
...There is not a soul in the land that doesn't long to return to the days before any supply-side experiment, back when inflation was only 14 percent and the prime rate only 20 percent...
...In the only sense in which supply-sidism had a chance of being valid it is a proposition about what happens in the long run, and that has not been tested...
...To the extent that more and more hardworking citizens have lost confidence in the way the United States government seizes and disburses the money they have earned, more and more jobs are being done for cash, more and more items are being sold by peddlers on street corners who keep no records, there is more and more barter, and more and more businessmen and high-income earners, liberals and conservatives alike, are seeking domestic and overseas tax shelters, and refusing to consider that wanting to protect the money one has earned is a crime...
...All was "equilibrium": the economy was a system of ducts, pipes, locks, dams, and canals through which the liquidity of national income flowed...
...Instead, proponents of supply-side policies allowed themselves to be interpreted as pro-business and anti-labor...
...The President's program involved tax incentives, spending restraint, deregulation, and a non-inflationary monetary policy...
...There is an ideological barrier most apparent in the economic womb, i.e., economics departments...
...and it means, since we live in a world economy, international stability...
...Or is it restrained growth of the money supply...
...It is clear that if tax rates are high to start with and you cut them substantially, and then wait for the results to be felt, you can reduce tax rates and the increase in taxable revenue will make up for part of the taxes lost through the rate reduction...
...Either taxes will have to rise, putting supply-side economics policy into reverse...
...Stated as simply as possible: supply-side theory begins with the assumption that the producer is the dominant actor in the economy, and that supply creates its own demand, i.e., production will be consumed...
...George Gilder is the author of Sexual Suicide, Wealth and Poverty, and the forthcoming The Spirit of Enterprise (Simon and Schuster) and Chip Wars...
...In that sense, supply-side is not dead but waiting to be revived by such a leader as Ronald Reagan seemed to be...
...Now two years later in the summer of 1983-with the Roaring Eighties erupting on cue, inflation dying, and the rich paying their highest share of income taxes in 11 years after the drop in the top rate-I am asked to contemplate the possible death of supply-side economics...
...We were taught that gold, if it didn't cause the Depression, certainly prolonged the suffering of those years...
...You know for sure that this apparently cautious advice is ideological, not pragmatic, when the rationale shifts but the policy outcome remains the same...
...PAUL CRAIG ROBERTS The establishmentarians that President Reagan hired to run his government have thoroughly mismanaged his economic policy...
...TOMBETHELL Supply-side economics, which promised tax cuts, a restoration of incentives, and decentralized decision-making, came under attack from the liberal-left almost as soon as it emerged in the newspapers, beginning in 1979...
...Well of course after the tax cut went into effect inflation went down...
...Social spending and taxes have not been cut as promised...
...To benefit from an across-the-board income tax cut, you have to earn income...
...That ought to tell you something, namely that it isn't good politics to be linked to supply-side economics...
...Secondly, aggregate capital investment always declines during recessions, so the past two years' figures should be no surprise...
...In one sense, we are all supplysiders now...
...In 1981, their advocacy of more generous tax amortization for industry and implicit hostility to marginal tax cuts actually put them in the stance of favoring just another business subsidy...
...Now you and I and the President can decide for ourselves whether supply-side economics is dead...
...That would be far-fetched...
...MELVYN B. KRAUSS Ronald Reagan came to office as the high priest of supply-side economics...
...nor should the electorate be disenfranchised from governance...
...They aren't and haven't been since we destroyed the gold-based Bretton Woods international monetary system in the late 1960s...
...Still, supply-side economics, enacted only to a minor extent, has proved to be a moderate success...
...WILLIAM M.H...
...Much maligned landlords supplied, as measured by rental income, a mere $33.6 billion...
...Liberals" are concerned with aggregates like the "good and just" society...
...This, of course, boils down to American political and military strength...
...Many people, especially those ignorant of the subtleties of economic theory, came to interpret this as a claim for a magic cure for our economic ills: that is, if you cut tax rates enough, government revenue would instantly increase and we could have more spending for social programs and national defense...
...In some cases, the historical evidence shows that taxes flowing into government's coffers could actually increase as a result of a decrease in tax rates...
...What we can predict, Professor Gutmann says, is that lower tax rates would increase both the potential of the legal economy to produce gross national product and, as a result, the potential of the legal economy to move to higher productivity-something that is very urgently needed...
...The idea that Congress is normally panting to raise taxes and has to be deterred from doing so by an economic theory is groundless...
...Supply-side economics," he declared, "was right in its conclusion that lower tax rates do stimulate work, savings and investment...
...In the first two quarters of the 1983 recovery, government borrowing fell from 33 percent to 21 percent of private savings...
...but it was wrong...
...Purists believe the only bona fide supply-sider inside the Reagan Administration is a middle-level White House aide named Wendell Willkie Gunn, though Dr...
...Hell hath no fury like a priesthood scorned...
...The Reagan tax cuts can be viewed in large measure as an imperfect attempt to offset social security tax hikes and bracket creep rather than thorough-going supply-side policy...
...He lives in a large White House in a generally run-down neighborhood, miles and miles removed from those purlieus where normal middle-class Americans dwell...
...Incentives extend into every aspect of life, in addition to economics...
...Stockmanomics implies that higher inflation must lower interest rates by reducing the deficit...
...Tens, if not hundreds, of billions of dollars are being saved by individuals and businesses, thanks to reform or elimination of needless federal regulations...
...What is galling to Dukakis is that all of this took place well before his first new budget took effect...
...Even the usual methods of Marxist robbery, seizing the material means of production, are feckless in practice...
...But getting people to take the micro view of government activity is no small task...
...Although steel mills, airlines, and coal mines may not have increased their capital spending recently, the growth in venture capital has been unprecedented...
...There is only one plausible answer: its changing tax climate...
...The economic miracles in Germany and Japan didn't begin until the two enacted supply-side policies...
...The first is the disarray in monetary policy, which boils down to how much money the Federal Reserve decides to print...
...Or at least it's not good to be linked to the name...
...They squawked at the idea of cutting the top tax rate from 70 percent to 50 percent...
...In a recent 6 to 1 decision, the California Supreme Court denied the California voters the right to vote on a legitimately qualified constitutional amendment...
...Thus, a policy that gets government off the back of suppliers will benefit the suppliers simply because of their sheer number...
...Volcker squeezed too hard, too long...
...tax policy was, however, a half-hearted one at best...
...The positive sense in supply-side thinking is the renewed emphasis that it has given to the structure of incentives in the economy and to their long-term significance in generating economic growth: the incentives to work, save, invest, invent, and to act entrepreneurially...
...Did someone mention motives, incentives, and desires...
...The desire of people to get ahead isn't dead...
...But even if supply-side as a movement has become stagnant, I believe it remains alive and well as the best available means for economic salvation by political leaders courageous and astute enough to seize it...
...ALAN REYNOLDS There were always two sides to Rea-ganomics-a demand side and a supply side...
...Who benefited...
...supply-side is now an epithet...
...At best, they may judge part of the supply-side program to have worked-the tax cut side...
...They get to vote anyway...
...Everyone knows that we are now in the worst economic predicament since 1929...
...We prevented a re-descent into self-destructive trade wars through the General Agreement on Tariffs and Trade...
...The stock and bond market booms have contributed to a $1 trillion increase in the wealth of American families...
...Still, there are grown men who will not step on a crack in the sidewalk, because deep in the back of their minds is a childhood doggerel about "Crack, crack, break your mother's back...
...These theories have all the scientific standing of the claim that frogs cause warts...
...Almost all brands of supply-siders agreed that tax-rate cutting must be implemented at the same time as anti-inflationary policies, to cushion their effect...
...To make sure, they sicked Paul Volcker on it and encouraged him to raise interest rates...
...It is an impossible task...
...There is, for instance, the puzzling matter of monetary policy...
...The USSR, for example, leads the world in "capital formation...
...HERBERT STEIN I hate to be Talmudic about this, but if you ask me whether supply-side economics has died, I have to answer with two other questions...
...To accept supply-side economics means abandoning long-cherished beliefs...
...It's just going under a new name...
...And his knockout punch was calling conservative Democrat Ed King, his Primary opponent, "Ronald Reagan's favorite governor...
...That is a lot for an idea to accomplish...
...WARREN T.BROOKES Liberal Massachusetts Governor Michael Dukakis has a penchant for telling political whoppers that belie his vaunted personal integrity...
...Reagan was giving the patient good medicine but Dr...
...Elected representatives don't understand, let alone read, the legislation upon which they vote...
...There is both hard and anecdotal evidence to support the Gutmann Curve...
...Neither has the sum of revenues and savings...
...For nearly 26 months, once impoverished Massachusetts has been enjoying the lowest unemployment of any major state...
...The final area of conflict is of course government...
...People tend to associate supply-side economics with the recession, which was long and deep and painful, and with deficits, which are enormous...
...Hammett is President of the Manhattan Institute for Policy Research...
...Feldsteinomics implies that a balanced budget would raise inflation by sinking the dollar...
...On July 29 when I asked him about further tax rate reductions, he indicated he would not be so inclined because of "those deficits out there...
...than the old one was...
...Is it easy money, as some enemies of the supply-side movement now claim...
...Alan Reynolds is Chief Economist for Polyconomics, Inc...
...At a minimum, monetary policy critically wounded supply-side economics...
...So supply-side is staying alive, both in the public policy arena and in the real world...
...A political system that fails to reward politicians in direct accordance with the beneficial aspects of their policies will ultimately become so misshapen as to deny the body politic the bulk of the prosperity that could have been...
...Those who long ago stopped calling themselves supply-siders and started pressing for tax increases include Rep...
...Despite the poor record of the past 15 years, our experts cling to this now-obsolete thinking...
...And that seems to have had some quite salutary results...
...People do deserve the governments they have, if only they secure the power to control...
...Why is there such skepticism about old-fashioned incentive, what some call supply-side economics...
...These principles are paramount in the economics of growth...
...German, Japanese, and American tax cuts worked because Bretton Woods provided a modicum of international financial stability...
...So taxes were raised in mid-1982 (as in 1932), and plans were made to impose the worst conceivable "contingency taxes" in 1986...
...The nearest major state is Texas with 7.8 percent unemployment...
...In fact, much of the debate on taxing and spending is still a response to the supply-siders' agenda...
...So all the supply-siders are saying is that government policies have an effect on people's willingness to supply things...
...But probably not...
...From time to time, of course, the economics of ascetic egalitarianism, of Masoch, Sade, Marx, Galbraith, and Gandhi, will captivate Washington and induce the country to don leather and assemble in macro-economic aggregates on the corner of Christopher and Gay, with whips, enemas, emetics, price controls, cattle prods, chains, shackles, surtaxes, and other instruments of economic fine-tuning and redistribution...
...Personal income tax rates and business tax rates were reduced, but other tax rates, such as social security and state and local tax rates, increased, and the constant push of inflation shoved many of us into higher marginal tax brackets...
...They prescribed a tax increase to "reduce the deficit...
...Martin Anderson is a Senior Fellow at the Hoover Institution...
...Left-liberals want government action...
...An overwhelming $1,771.1 billion of national income was supplied by workers...
...3. Does supply-side economics still live as an influence on policy...
...The excessive level of government spending is to be attributed only in part to the President's attempt to rebuild America's defense forces...
...But sooner or later it is noticed by the uninitiated that countries that allow people to get rich do far better by their poor than countries that don't, that redistribution of wealth invariably means its destruction, that technological progress is almost entirely a product of individual creativity, that investment is far better managed by investors than by demagogues, and that any marginal tax rate over 25 percent does not redistribute incomes...
...The ballyhooed tax cuts of 1981 were followed by a bust instead of a boom...
...Is it a gold standard...
...paid by workers in the form of lower wages...
...CBO's deficit reduction strategy stressed minimizing "disincentives to work, save, and invest.'' In August 1983, one year after Reagan's flip-flop on tax policy, Democratic Senator Bill Bradley told Barron's that "the tax system is like a hurdle that the private sector has to get over to go on about creating the jobs...
...That's akin to asking: now that we have conquered space, do we have to continue acknowledging the Law of Gravity when we produce parachutes...
...What anyone gains, someone else must lose...
...But if you look at the substance of public policy, the answer is a qualified no...
...The correct answer is "fighting inflation...
...Instead of taking credit for supply-side successes and setting forth a new agenda of privatization and deregulation, they seem content to conduct a holding action, defending the status quo of a conservative welfare state...
...I will answer my own questions...
...The Right holds that route to be self-defeating, certain to reduce total output and increase poverty...
...Still, the pursuit of tight money, favored by at least a faction of supply-siders, was the ultimate source of the problem...
...A government that governs too much thus assures its own extinction, but only with an enormous toll of forfeited weal...
...Illogical and implausible though that formulation is, Reagan himself seems to have embraced it, and that is the most depressing news for the supply-siders...
...Surely it's not Tip O'Neill, Ronald Reagan, or the Supreme Court...
...Such actions are fortunately a rarity in California and, even in this instance, will probably be dealt with deftly by the electorate at some later date...
...If the implementation of supply-side economics can be faulted, it is for reasons different from those President Reagan's critics usually cite...
...When attached to a series of rewards and penalties, the ability to relate emerges as incentives and disincentives...
...According to Gary Fields writing in the American Economic Review, every income group did, but especially those below the poverty line-their personal income increased at a rate perhaps twice as great as the rate of those above the poverty line...
...Warren T. Brookes is author of The Economy in Mind and a syndicated columnist for the Boston Herald through Heritage and Hearst Features...
...One of the more important implications of the Laffer Curve for Third World countries is that a given level of tax revenues is consistent with two different rate levels-a low tax rate and a high one...
...There never was any reason to think that the proposition was valid...
...Public consumption in Ghana during these periods grew at an average annual rate of 6.1 and 1.5 percent, by 11.8 and 8.6 percent in the Ivory Coast...
...The stock market sank and interest rates reached catastrophic levels...
...In its report to the Senate and House budget committees, CBO warned that tax increases inevitably inhibit economic activity "no matter when they are put into effect...
...The actual application of supply-side economics in U.S...
...JUDE WANNISKI Supply-side economics is one of the two fundamental branches of economic theory, the other being demand-side economics...
...Blind to basic principles of microeconomics, Keynesian politicians believe that they can pass new laws and that afterward people will act just as they did before, i.e., provide just as much work, saving, and investment effort...
...Administration officials looked upon this wreckage and decided that the problem was not a shortage of cash, but a shortage of taxes...
...History has shown-is showing- that most of what the economists told us is wrong...
...They uniformly believe it is government's responsibility to manage aggregate demand, hence the policy of "demand management...
...Economists lectured us that inflation-free prosperity was an impossibility...
...True, delaying and back-loading the tax cut-not 10 percent on January 1, 1981, but 5 percent nine months later-may have abetted the recession, but I've never bought the argument that the recession would have been averted if the original 10-10-10 cut had gone into effect as initially scheduled...
...The supply-siders were assigned the task of increasing production, while demand-siders had the job of raising unemployment...
...Left-liberals are congenitally pessimistic about prevailing economic institutions...
...The following writers have taken oaths to supply us with some answers...
...Supply-side economics will not die because it contains a core of economic truth that will be preserved in economic thought if not in actual policy...
...In February 1983 when OMB and CEA were arguing for higher taxes, Alice Rivlin and the Congressional Budget Office came to terms with the supply-side policy that they had long opposed...
...It is literally true that all the models and resources of conventional economists could not enable them, in 1981 and 1982, to differentiate between the portents of depression and the promise of a supply-side boom...
...The record will probably show that in Reagan's term of office, 1981-84, tax rates were scarcely if at all reduced, except in the "unearned income" bracket...
...Another factor: for most people, the tax cuts were overwhelmed by inflation, even though it was declining, and by increased levies to save Social Security, not to mention what politicos were doing to state and local taxes...
...Supply-side economics was and is unpopular among the left-liberal intelligentsia because it restored the topic of incentives to economic discourse...
...The political opportunities are there...
...The "Keynesian" economics of aggregate demand and the balanced budget multiplier (higher taxes promote growth and progress) are as intellectually bankrupt and commercially profitable as Jane Fonda, astrology, or the Bermuda Triangle...
...Just political rhetoric of the sort that accompanies the push for any sort of legislation...
...Technology in the future, they contend, will overcome transient shortages and yield new resources, just as it always has in the past...
...Robert W. Poole, Jr...
...Yet I've received no award for behavior above and beyond the call of duty, not even a "Thank You, Daddy" card from my three families...
...The supply-siders such as Arthur Laffer are also surely right in depicting the 1981 changes in depreciation and leasing rules as a quite inadequate implementation of their prescriptions...
...Reagan's election in 1980...
...But rhetoric isn't everything...
...But that didn't matter because what the liberal-left dreaded was not inflation but tax cuts...
...Even the vapors of idealism pungent in his nostrils are no cause for alarm...
...It opposes the position of the liberal-left which had been more or less gathering strength ever since 1933...
...The whole world was watching once the bill passed, however, and what happened instantly was a recession, not a boom...
...I know: a lot of the inflated talk about instant nirvana was simply to get the tax cut through Congress in 1981...
...They point to the lack of growth in "capital investment" as evidence that the tax-rate cuts haven't worked...
...He drafted the Kemp-Roth bill in 1977 when he was chief economist on the minority staff of the House Budget Committee...
...Democratic Senator Bill Bradley says that "supply-side economics was right in its conclusion that lower rates do stimulate work, savings and investment...
...In Singapore the increase was 8.7 percent...
...Is supply-side economics dead...
...What's dead is the intellectual vitality of the economics profession...
...Graduates of these schools often emerge virtually ignorant of the IS and LM curves, the symbols of the macro tribe...
...Perhaps this is why critics have to announce the death of supply-side economics so often-the idea simply refuses to die...
...A wholesale return to incentive economics would discredit most economists...
...What is needed is the political will to initiate it...
...The financial community came to accept the obvious fact that the Federal Reserve's strict adherence to monetarism produced the deflation and deep recession of 1982, and that the Fed's abandonment of monetarism late last year spurred the bull market in stocks and bonds and the robust recovery we've seen this year...
...The political oversell elements of the package, however, need to be exorcised if the whole is not to be brought into public disrepute...
...It seemed the answer to a supply-sider's prayer...
...Statistical measures of capital formation, for example, even when celebrated by professed supply-siders, comprise an almost meaningless aggregate, in that the quality of investment is vastly more significant than its quantity...
...the ideals are generally benign...
...is President of the Reason Foundation and Editor-in-Chief of Reason magazine...
...The existing demand models, which are at heart redistribution models, have less relevance in a U.S...
...After Singapore at 9.8 percent came Hong Kong at 8.6 percent (Hong Kong is the low-tax champion of the Third World with a top marginal rate of 15 percent at $20,000), Korea at 6.9, and Taiwan at 4.5...
...First of all, corporations are legal fictions and as such do not pay taxes...
...By the late sixties and early seventies its growth rates approached 10 percent a year...
...I do not mean supply-side economics in the sense that economics has been largely supply-side since Adam Smith published the Wealth of Nations in 1776 and even before that...
...But today, even Walter Mondale has embraced a bill designed to cut the top rate to 30 percent and preserve the distribution of President Reagan's tax cuts-the Bradley-Gephardt plan...
...Thomas Aquinas thought it meant wanting other people's property...
...Not many, I'd guess, and maybe none...
...2. Supply-side economics may have contributed to Mr...
...More recently, the New York Times editorial writer Peter Passell has dropped the ideological camouflage and disclosed his true animus by calling supply-side economics a "rationalization for greed...
...This parody of the theory often passed for the real thing-and was not actively discouraged by a very small number of people who were gaining a reputation as "supply-siders...
...On that ground alone, supply-side economics appears to be pretty lively...
...ARTHUR B. LAFFER Action and consequence and the ability to relate the two is the central factor of behavior modification...
...Even the President has endorsed three tax increases in the last year (TEFRA, the gasoline tax, and the social security taxes) and has somewhat shyly proposed a contingent tax increase for the future...
...Although not all supply-siders fit the conservative mold, most do see the legitimate role of government as protecting the rights of the individual, including his right to maximize his wealth...
...But supply-side economics cannot die because it is the only economics of growth and progress...
...My God man, this was the twentieth century...
...To reconstruct a viable system of properly placed incentives within the political arena will be the ultimate achievement of supply-siders...
...Yet the stories continue to blame the blatant failure of demand management in 1980-82 on supply-side tax relief that did not, in fact, occur until January 1983...
...The reasons for that less-than-stellar debut are simple...
...The President's senior aides congratulate themselves on having weaned their chief from a tiny band of wild-eyed fanatics...
...Americans would have been spared a great deal of confusion, debate, and dema-goguery had the supply-siders simply called their economics "sensible" economics...
Vol. 16 • November 1983 • No. 11
