The Right Reviews Reaganomics
LEKACHMAN, ROBERT
The Right Reviews Reaganomics Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond By Herbert Stein Simon & Schuster. 414 pp. $16.95. The Supply-Side...
...Essentially, Stein favors a return to the 1950s...
...Nevertheless, Walter Heller and James To-bin, Kennedy's most important economists, were not above borrowing Stein's and the CED's cyclically balanced budget as justification for a tax cut during a period of moderate growth and existing deficit...
...Arthur Burns...
...Alan Greenspan...
...The transition was to Reagan's "The Economics of Joy," and here Stein's judgment is delightfully scathing...
...Suspects in the media are most of the national staff of the New York Times and Washington Post, notably Leonard Silk and Hobart Rowen...
...Stein is even blessed with a sense of humor...
...Next came "The Uncertain Transition" of Ford and Carter, when confusion reigned as much among economists as the politicians they poorly advised...
...He came to the Treasury Department, as Assistant Secretary for Economic Policy, from the Wall Street Journal...
...Monetary policy has to bear the burden of restraint...
...Paul Craig Roberts, author of The Supply-Side Revolution, was an early worshipper of supply-side nostrums...
...They worry about inflation no less than good conservatives...
...Interest rates in real terms stayed high because the players in financial markets were terrified by the prospect of historically enormous deficits even after recession ended...
...Of the President's own White House staff, David Stockman, James Baker and David Gergen are major villains...
...Arthur Laffer's airy prediction that the tax cuts would pay for themselves by stimulating enough growth to pour as much revenue into the Treasury at lower tax rates as was collected at higher rates from a torpid economy, rested on a foundation of pure faith...
...18.50...
...Leon Keyserling came in second...
...The excessive activism of the Kennedy-Johnson era, however, generated excessive spending and dangerous inflationary pressures...
...Kennedy could not of course campaign for the Presidency without misrepresenting his predecessor's record as an unsatisfactory episode of sluggish growth and high unemployment...
...As a true believer in the benign effects of lower taxes on large incomes, and in Ronald Reagan as their proponent, Roberts had a hard time in Washington and departed after a single year...
...Economists must provide an improved intellectual climate for politicians so that those crafty, self-interested animals can make sensible decisions that advance their own interests...
...Reagan, despite protestations to the contrary, did go along with a 1982 tax rise...
...Stein takes encouragement, though, from the liberal as well as the supply-side intellectual disarray...
...Roberts ends on a note of cheer: "Supply-side economics is the economics of a free society...
...Between them, the two conservative economists illustrate that the spread of opinion in their camp is at least as wide as it is among liberals, social democrats and miscellaneous radicals...
...Could rapid economic growth be restored without an intervening recession...
...Did Reagan genuinely believe in the supply-side combination of huge tax cuts, slower money growth, assault upon social programs, and Pentagon Keynesian-ism...
...Soon afterward, Stein was named chief economist of the Committee on Economic Development (CED), where he played a crucial role in teaching the members of that comparatively enlightened business group the intelligent uses of Keynesian economics...
...Roberts tells a peculiarly inconsistent story...
...Stein's view is that of a man who has worked in the company of a great many politicians: "Politicians generally believe what they say...
...Federal Reserve Board Chairman Paul Volcker is given the place of honor in the enemy camp...
...The problem with the liberals is that they remain open to the temptations of an incomes policy and the new lure of industrial policy—both, to Stein, dangerous distortions of free markets...
...By this time, Stein was Chairman of the President's Council of Economic Advisers, and before long he found himself in the anomalous situation of administering wage-price controls he detested...
...Political demons include Republican Senators Robert Dole of Kansas, Pete Domenici of New Mexico and Howard Baker of Tennessee...
...As Stein muses on the 1950s, prices were nearly stable, recessions were short and shallow, and living standards steadily improved because by and large the Eisenhower Administration adhered to the CED's version of Keynesian-ism...
...In 1982, Congressional Republicans compelled the President to accept a tax increase that retrieved about a quarter of the preceding year's cut...
...In contrast to the benighted Chamber of Commerce and National Association of Manufacturers, theCED won a deserved reputation for policy originality, for intelligent presentation of rational conservative alternatives to liberal spending proposals...
...This is all to the good...
...In particular, the CED recognized the virtues of budget deficits during recessions, so long as they were counterbalanced by surpluses during boom periods...
...Reviewed by Robert Lekachman In 1944, out of a field of 30,000, Herbert Stein won first prize in the Pabst Brewing Company's essay contest on employment patterns after World War II...
...No economist can be sure, but people are unemployed because of their own deficiencies of skill, attitude, training, or education...
...327 pp...
...It is reasonable to assume that lower taxes on any activity—work, risk, saving, investment—will evoke somewhat more of the chosen activity...
...Volcker plunged the economy into an unnecessary recession that damaged the public image of Reaganomics...
...and, of course, Herbert Stein...
...One of the main ways by which politicians learn what they think is through listening to what they say...
...Like many other prosperous souls, Stein endures stoically the misfortunes of others...
...It will prevail wherever freedom itself prevails...
...The trouble was that aside from Kemp in Congress, Roberts' Treasury superior Beryl Sprinkel and, on good days, Secretary Donald Regan, scarcely a soul supported Ronald Reagan...
...There he had helped convert the editorial philosophy from traditional budget-balancing Republicanism to the gospel according to Arthur Laffer, New York's Congressman Jack Kemp, and sometime Journal rival and colleague Jude Wanniski...
...Just possibly, four more years of Reagan may turn the trick...
...Frightened by the deep recession its tight money crusade had caused, the Federal Reserve began that August to pump money and credit into the economy, just in time to avert disastrous Republican losses in the midterm election...
...The proper national concern is inflation, not unemployment...
...Richard Nixon then tried to reshape the Great Society programs in conservative directions, but spent just as much Federal money as his Democratic opponents...
...The vital issue is how much more and how soon...
...The liberals no longer advocate new, expensive social programs...
...Reaganomics quickly clashed with reality...
...Prudent budgetary and tax measures ought to supply the context within which the Fed can do its wholesome work...
...After reading these books, you should feel utterly entitled to your own opinion about tax, spending, deficit, and credit policy...
...There was no way to cure inflation without recession...
...Stein and Roberts both write well, something that can be said for few of their professional peers...
...The Supply-Side Revolution: An Insider's Account of Policymaking in Washington by Paul Craig Roberts Harvard...
...The "natural" rate of unemployment may be 6 or 7 per cent...
...He appears to think that in the wake of the civil rights, environmental and feminist agitations of the last generation, largely ignored in Presidential Economics, we can rerun history to the reign of Eisenhower the Good...
...Federal programs are no solution to their dilemmas...
...Greenspan's Social Security commission inflicted still another tax wound...
...But the recovery that began in late 1982, following that year's tax increase, somehow is credited to supply-side innovations...
...The 1981 tax cuts were reduced in size and delayed in effect...
...Among Roberts' professional saboteurs are Murray Weidenbaum and his successor as chairman of the Council of Economic Advisers, Martin Feldstein...
...In other words, sincerity is unimportant because campaign speeches form expectations...
...They are willing to accept 6 instead of 4 per cent unemployment targets...
...Evidence, as Stein informs us, is nonexistent...
...On the one hand evil triumphed...
...In these events, according to Stein, supply-side theory played an inconsequential role...
Vol. 67 • February 1984 • No. 3
