The Supply-Side Revolution

...It is difficult for us even to look at her, as we can look at the women of Rome or Milan...

...But the idea that needed pushing was this substitution effect's prime import, relative to other factors, in explaining economic activity...

...But how, concretely, has an ivorytower elite acquired practical power and influence...

...THE SUPPLY-SIDE REVOLUTION: AN INSIDER'S ACCOUNT OF POLICYMAKING IN WASHINGTON Paul Craig Roberts/Harvard University Press/S18.50 Thomas Hazlett Ronald Reagan rode to Washington on a mandate, and with a mission, but soon fell victim to a quiet mutiny (so quiet, in fact, that the commander never knew he had walked the plank...

...For all of David Stockman's political ineptitude in his candid talks with his Washington Post breakfast pal, he at least could call it straight...

...Through these painstakingly documented pages scurry the termites Robert James Bidinotto is a contributing editor of On Principle, and a frequent reviewer for the Boston Herald...

...Try as supply-siders might (and Arthur Laffer certainly has), property taxes do not strike at the margin...

...of pluralism: those who use the very virtues of American society--its tolerance, liberty, and generosity--to transform it into a collectivist "utopia...

...As the Fed created recession, Stockman conspired with White House insiders to "make himself economic policy czar," and to focus national attention on the deficit, which, he alleged, would stymie recovery if unchecked...

...Roberts, in a telling omission, says not a word of Reagan's embarrassing failure to liquidate the departments of energy and education or of the scandalous boosters to agricultural subsidies (now at $60 billion annually, according to the Economist --$30,000 per farm family...

...Reagan's mandate was his bruising KO over bantamweight Jimmy Carter in the 1980 presidential prize fight...

...The Democratic leadership rallied desperately to hold off the persistent Marjorie Holt, whose bill to combine Kemp-Roth tax cuts with commensurate spending reductions had been beaten back in the summer of 1978 by a shaky 206-201 margin...

...Russell surely has made the effort, and I would be more than astonished if I were to learn that he was not at home in many a Parisian house of distinction...

...The authors, Rael Jean Isaac and Erich Isaac, have already left their mark in magazine exposes of the "peace" movement and efforts by American churches on behalf of international terrorists...

...Unfortunately, Roberts's account of Reaganomics under Reagan is less compelling...

...There are the environmental gurus--Amory Lovins, Barry Commoner, Jeremy Rifkin--who would coercively impose a "conserver society" and a "frugal or Spartan lifestyle...

...The Coercive Utopians is an eyeopening guided tour of the world of intellectual and political manipulation...

...Ignoring the fact that the budget had Basic Books, $17.95...

...Jim Baker and the Senate Republicans undermined the President with ruthless pressure and sneaky press leaks, endorsing higher taxes in response to powerhungry David Stockman's constant wailing about the deficit, which in turn was a factor only because of flub-ups at the Fed by Paul Volcker...

...The "supply-side revolution" was vanquished, and the dastardly deed was definitely an inside job...

...It would be my guess if you would reduce your top rate to 50 percent, you actually would make money.' " Soon, both Democraticcontrolled houses, frightened over the stagflation mess and angling for a way to cut in front of a growing tax-revolt movement, were voting to cut capital gains taxes and personal income taxes as well...

...Rather than pressuring Volcker for a little quick inflation fix, we would be better served by some Reaganesque fiscal restraint...

...Nothing could be easier than to play armchair Fed chairman...

...For more than forty years I have had the greatest difficulty in understanding malevolent generalizations about Parisians to which even Russell almost seems to have succumbed...

...Still the same was true of most capitals, except that France with its century of bloody revolutions managed to pass basic social legislation only some sixty years after Disraeli and Bismarck had done so without revolutions...

...Indeed, the classical economic argument for increased private saving is that consumers rationally predict higher future tax payments, and put aside for them...

...Twist as supplysiders might, every dollar spent by government will be expropriated from a taxpayer somewhere, sometime-with interest...

...Their "coercive utopians" are diverse groups and individuals who think an "ideal" social order must be imposed by government coercion...

...Nor was the 70 percent rate a revenue raiser...

...And if one has to identify the single aspect of American life they find most repugnant, it is our economic system...

...his mission was to cut federal spending, slash taxes, and level overzealous regulatory bureaucrats...

...I t must frustrate Roberts terribly to have a zero-cost solution to high taxes, 40 THE AMERICAN SPECTATOR AUGUST 1984 rampaging inflation, and economic stagnation, only to see the President's inner circle uninterested in his plan...

...But eventually he comes out on the tight side: "Nowhere is friendship more enduring, or hospitality more subtly resourceful, than in Paris...

...it "is both true and not true," he informs us...

...Because, in fact, spending matters...

...How else could he write about the Parisian woman: "She is not open to the foreign visitor...

...Indeed, the tax cut ball was sent rolling by California's Proposition 13, the tax cut heard 'round the world...

...Reagan had his program in place, and his congressional votes in line...

...Tax reduction, of marginal and average rates, should form part of a serious economic reform package encompassing significant spending cuts and extensive deregulation...

...C'mon...

...Hemingway called Paris a moveable feast...

...Roberts has a more plausible rationale for ignoring spending and, hence, deficits...

...Denouncing those who point to the cost of federal spending programs, which under Reagan have bulged from 23.3 percent of GNP to 25.7 percent, is a task better suited to old-fashioned Keynesians...

...41...

...Russell Long, says Roberts, "did not think it had cost the government any money when the top bracket was cut from 90 percent to 70 percent in the 1960s...

...he appears to be about the only oldtime supply-sider still with us who hasn't become wealthy or famous (or President) from peddling the stuff...

...And they adopted a strategy of corroding, not confronting, the System, by penetrating influential institutions...

...Inasmuch as deficits are a promise of future taxes, any positive incentive effects deriving from lower current tax rates will simply be cancelled by the expectation of higher future tax rates--when today's investments pay off...

...But let us not overstate the virtues of altruism...

...By successfully permeating the hated "establishment," they have given new meaning to Pogo's lament that "We have met the enemy, and he is us...

...If government deficits bore no cost, it would be foolish for the feds to tax us a red cent: simply borrow the entire federal budget...

...Although the 3-year, 25 percent across-the-board personal income tax reductions did make it into law, the cuts were delayed, the policy was never adequately explained, and the Fed botched the recovery...

...The Administration was never serious about across-the-board spending cuts...

...Rather Russell wants to see Parisians in the romantic glow of mystery...

...There are the various denominations of the National Council of Churches, which--like their Catholic brethren who spout "liberation theology"-"sanctify revolution" by funding and backing Marxists and terrorists at home and abroad...

...The supply-side theory is a bright and beautiful lady who needs persistent reminders not to behave like a harlot...

...Certain supply-siders simply deny this outright: Wanniski and Laffer, Roberts notes, were in fact pushing for higher federal spending (cut marginal tax rates and let the good times roll...

...Although the Carter Administration succeeded in gutting the Nunn Amendment on a conference committee butcher block, tax cuts were blowing in the wind...

...It was a breath of fresh air...

...returned to balance the year after the Kennedy-Johnson tax cut precisely because government spending did not increase, they clung to the scant hope of the Immaculate Reflows...

...This the supplysiders have done with great vigor, and reasonable success...

...Rather, it condenses within the philosophical smog layer enshrouding the universities, and descends upon society in a corrosive downpouring of proposals, experts, and organizations...

...While Roberts has done serious supply-siders a favor in breaking ranks with Jude Wanniski ("Wanniski . . . sensationalized" supply-side economics) and Arthur Laffer ("none of the supply-siders within the Administration were Lafferites promising that the tax-rate reductions would pay for themselves in higher revenues"), he fails to deal with the global economic issues surrounding tax rate reductions...

...The common neck connecting the many faces is the belief that American society "is deeply flawed, indeed hateful," the Isaacs write...

...But this simply turns savings into a burden that discourages work effort just as certainly as taxes on marginal income...

...Thus "the Reagan strategy of balancing the budget through economic growth was being replaced with the Stockman strategy of balancing the budget with higher taxes...

...Let us be thankful for his romanticism...

...Buy it...

...The measure slashed property taxes by 57 percent, costing the state about $7 billion in annual revenue...

...Zero money growth for six months may have been an overreaction--but that is the proper side on which to err for credibility when the world (i.e., Wall Street) suspects another underreaction...

...It would, said Senator Muskie, "tie the hands of future Congresses"--which, oddly, was Muskie's argument against the measure...

...And all the Reagan mandate threw back at them was more taxpayer slop...

...He is also senior editor of the Manhattan Report on Economic Policy...

...John Russell's book about it is a feast of civilization...

...I--1 THE COERCIVE UTOPIANS: SOCIAL DECEPTION BY AMERICA'S POWER PLAYERS Rael Jean Isaac and Erich Isaac/Regnery Gateway/S18.95 Robert James Bidinotto Collectivism doesn't spring from the grass roots of society...

...What with the tax cut fever pushing Nunn, Long, and even the JEC on to new heights (and cuts), according to Roberts, Reagan's supply-side agenda would have flown if not for "the struggle between President Reagan and his aides...

...Some of the true believers still held tight...

...Russell has some trouble dealing with this nonsense...

...But--just at the moment of triumph--he was betrayed by a cabal of his closest allies...

...By June 1977 Senate Finance Committee Chairman Thomas Hazlett teaches economics at the University of California, Davis...

...The Issacs are not conspiracy theorists...

...Again and again I have experienced just the opposite, as for instance, when at the rush hour during a subway strike, and when no taxis could be found, a bell boy at a restaurant drove me in his own car some twenty-five minutes to the suburb of Neuilly and refused payment with the explanation that he was not a taxi driver, or when a complete stranger whom I asked for directions to a restaurant insisted on walking me there four blocks in pouring rain...

...Instead, Roberts has been toiling to make the rest of us wealthy--or so he believes...

...If you do, you'll be pleased to find that this is just what Paul Craig Roberts, President Reagan's once and never-again assistant treasury secretary for economic policy, has to sell...

...The Democratic majority, including such liberals as Kennedy and McGovem, signed the report, thereby endorsing the supply-side approach that the Republican minority had been working toward for two years...

...In selling their soap as painless, costless, and even selfcleaning, and by crucifying those who have had the guts to tackle the more rugged clean-up jobs of ending inflation and scouring government pork barrels, the supply-siders run the risk not of burying the corpse of Keynes, but of joining him...

...In fact the only "incentive kick" from tax cuts without commensurate spending cuts is had by financing today's programs on the backs of future taxpayers-hardly a moral or democratic argument for tax "cuts...

...Reagan's deregulatory efforts has been to exile Rita Lavelle to federal housing, and James Watt to Siberia...

...In his Supply-Side Revolution, Roberts assiduously documents the book's subclaim: "An Insider's Account of Policymaking in Washington...

...In October 1978, the House and Senate voted by wide margins (268-135 and 65-20) for the Nunn Amendment ("son of Kemp-Roth"), a plan to cut taxes and limit federal spending...

...This book is their comprehensive survey of the methods and personnel of modern collectivist groups--a virtual Who's Who of the post-New-Left Left...

...But why would David Stockman, who drank from the very same cooler as Roberts, be such a hard sell...

...Speaking English and hanging out with other expatriates was easier...

...Specifically, in the dark, recessionary days that followed Reagan's 1981 tax cut victory we were hit by "Volcker's regime of six months of zero money growth--a policy far below Federal Reserve targets and one unexpected by the Administration...

...This is plain wrong...

...they have about as little effect on shortrun economic incentives, in the supply-side sense, as any tax on the books...

...Let's suppose, says Roberts, that if one dollar of tax reduction is granted, it will result in forty cents additional tax payments (the work incentive effect) and forty cents more savings, thus leaving just twenty cents of that dollar tax cut to enlarge the deficit...

...deficits do promote inflation fears, they do crowd out the private sector...

...if economists know anything about macroeconomics it is that reining in a 13.3 percent inflation rate in two years will be neither perfect nor painless...

...At its core, supply-side is a graph masquerading as a crusade...

...Roberts, I suspect, is a relatively reliable source for a supply-side yarn...

...To his credit, Roberts does a skillful job outlining the momentum that existed in Congress for tax c u t s . . , under Carter...

...But not only has the conservatives' fiscal agenda proved as extravagant as the liberals' (as George Will has gleefully pointed out), but the limit of Mr...

...Roberts describes it: Led by Senator Bentsen, the new chairman, and Representative Clarence Brown, JEC produced its first unanimous report in twenty years...

...Collectivism is the acid rain of academia...

...He admits that tax cuts will prompt deficits, at least temporarily, but will mitigate this problem by encouraging savings...

...The pigs were really feeding," the boy budgetcutter observed to Mr...

...Greider...

...Yet, no one really takes the supply-siders' claim of a nocost deficit seriously...

...Still, the revolt against fat government needs more, and has more...

...David Stockman's motive...

...Economic democracy" became their new euphemism for "socialism...

...Perhaps this past lends some credence to the conventional slander, spread not only by foreigners but by Parisians themselves, that Parisians are more rude, selfish and inhospitable than other mortals--"abrupt, edgy, rapacious, egoistic, and smug...

...How have ideas supposedly alien to most Americans come to dominate their lives, seize their institutions, and undercut the vision of their nation's Founders...

...If true, it is likely that Hemingway and Fitzgerald never made an effort...

...The Reagan electoral landslide was a window of opportunity in the battle to reduce government, a window which has now been slammed shut THE AMERICAN SPECTATOR AUGUST 1984 (and perhaps broken in the closed position...

...Supply-siders have mistakenly (although, in a political world, understandably) tended to look at tax reduction as an economic all-purpose cleanser...

...So, like the British Fabians, our homegrown socialists began to soft-sell their program...

...Republican constituencies ("strong claimants") with bald-faced grabs for subsidies ("weak claims") ran the show from Day One...

...As Michael Evans recalls, in his most convincing The Truth About Supply-Side Economics': With no major spending cuts in sight, the entire hope of the Reagan administration for a balanced budget with higher defense spending then hinged on some miracle that tax receipts would somehow bridge the gap...

...Watching Stockman push so hard for tax increases created the impression that Stockman wanted supply-side economics to be perceived as having failed...

...They save for (future) taxes...

...With so much to offer with integrity, why should she cheapen herself...

...And then came the stunning 1979 report from the Joint Economic Committee of Congress...

...Coercive utopianism is a loose intellectual coalition, not a monolithic plot--a many-headed hydra with a shared body of premises...

...During 1981-82 the supplyside approach to economic policy fell victim in part to the failure of monetary policy, in part to the ego struggle that senior aides carried on against the President and in part to a campaign conducted against supplyside economics by elements of the media," claims Roberts...

...The simple notion that higher marginal tax rates create "substitution effects" tending to take people out of work and investment and into leisure and tax dodges is universally acknowledged by all educated analysts...

...Roberts could be a bit more understanding of the man who, at a minimum, has given Roberts's former employer his one decisive policy victory: the gagging of inflation...

...Nor is it true, as Russell does maintain, that the private world of Parisians is impenetrable, that, as he says at the outset, " P a r i s . . . is a secret society...

...In the 1970s, the graying remnants of the New Left realized that their overt hostility to America had spawned a conservative political backlash...

...He concedes that "Thomas Jefferson and Benjamin Franklin were made welcome," but seems to find it more significant that Ernest Hemingway and Scott Fitzgerald probably never got to be at home "in a Parisian house of any distinction...

...Its useful contribution was to push economists and policy-makers into re-emphasizing the financial incentive effects of the tax code...

...Stagflation, said the report, is the result of policies that have stimulated demand while retarding supply...