The New Republic

Can't you just say they suffer from wishful thinking?

- Nusholtz

October 21, 2010 at 5:16pm

From Wiki: Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. Consumers will then benefit from a greater supply of goods and services at lower prices Chait: Show me the overwhelming evidence that economic growth is created by raising barriers to produce, increasing income taxes and capital gains tax rates and increasing regulations. Double-dog-dare you.

- mr_rationale

October 21, 2010 at 5:41pm

Mr_rationale. Ask a small businessman if he would rather have: (1) low tax rates when he isn't making any money to be taxed in the first place because he doesn't have any customers; or (2) customers that are receiving unemployment insurance, or have stimulus jobs, or receive social security income, or any other income supplement. You will have your answer.

- Nusholtz

October 21, 2010 at 5:51pm

So when the Republicans take back Congress and the White House, cut taxes for the wealthiest Americans, and increase government spending, and the US defaults on its debt and the US and world ecomomy implodes, we will hear the chorus of I told you so. From Republicans, of course.

- rayward

October 21, 2010 at 6:08pm

mr_r helpfully points out exactly why supply-side economic theory is a sign of late-stage, pre-collapse decadence. Only a civilization in which ruling elites are too many generations removed from agricultural or artisanal production of goods could conceive of supply creating demand as anything other than dangerous farce. As anyone who adds value through the production or sale of material goods can testify from firsthand experience, rapid increases in the supply of any good do not create wealth; they destroy it. Double the amount of corn produced this year, and corn producers will not be twice as rich. They will be about one-third poorer, give or take. The basic tenets of supply-side theory are the very definition of out-of-touch and decadent elitism. In teaparty terms, no economically productive person can both understand and believe in supply-side; belief in it indicates either misunderstanding or economic parasitism.

- rhubarbs

October 21, 2010 at 6:17pm

You know, their hypothesis seems very intuitive---but that study is kind of hard to believe. I mean, seriously, if I write "My favorite TV show is The Sopranos" with my left hand, I'll suddenly be gripped with doubt about whether or not I'm actually a "Mad Men" man?

- ulexamp

October 21, 2010 at 9:04pm

Citing Wikipedia? Fail.

- cspencef

October 21, 2010 at 9:09pm

Wow. Rationale cribs from Wikipedia in an attempt to refute Jonathan Chait. The fact is that supply-side economics is anti-empirical - it is a belief system, but rationale is too dense too even know that.

- liberal reformer

October 21, 2010 at 9:31pm

Remember Republican predictions that the sky would fall when the Clinton 93 budget package passed that increased marginal rates for the top earners ? The sky was literally supposed to fall. Well of course the exact opposite happened. There is an answer to the " double dog dare you " . The Supply Siders have gotten the last two decades flat wrong.

- alanwilkov

October 21, 2010 at 11:37pm

I think rayward described what just happened from 2000 to today (with the exception of the US defaulting on its debt). W's tax cuts hardly led to an era of unbridled growth and prosperity. The H.W. and Clinton tax increases did not kill a supposedly delicate recovery. Correlation is not cause, but then supply siders would find it hard to argue that tax cuts cause substantial growth just because one follows the other. At the extremes, it's obvious what happens: sufficiently high taxes will decrease economic activity, and if they're too low then revenues will not cover expenses and explode the debt. But under current conditions, maybe the evidence shows that the overall economy just isn't all that sensitive to changes of a few percentage points in marginal tax rates. For the last decade, we've lived the supply side dream. The finance sector said just give us lower taxes, easy credit, and less regulation. They got it. I wonder why people are unhappy.

- dsimon

October 22, 2010 at 10:15am

Wow!!!! - the liberal economic ignorance is amazing. You guys would fail any college econ course Lets start the refuting with the most ignorant: 1. rhubbarb: You are confusing supply with factors of production. Labor and Capital are factors of production not supply. And you don't understand the role price plays in the demand curve. Increasing supply at lower price does increase de suplliers are willinng to supply at. Suppliers supply until price = marginal cost. Lowering marginal cost will lower price. Lowering price does increase deamand. Are you really this stupid? Do you believe you have a grasp of basic econ? Are you delusional? Read a book on econ, you are embarassing yourself 2. libref -- how about some facts? supply side is based on basic econ theory. For once make a substantive point. 3. alan -- The Clinton defense is superficially plausible, but it fails under closer scrutiny. Economic growth was solid but hardly spectacular in the years immediately following the 1993 tax increase. The real economic boom occurred in the latter half of the decade, after the 1997 tax cut. Lowtaxes are still a key to a strong economy

- mr_rationale

October 22, 2010 at 11:09am

Yes, the zealots may bear down. But, people who aren't as committed, sort of middleish, can be persuaded by evidence and logic -- and the zealots are only like 20%, and an old 20%, who, I'm sorry, but they're going to die off relatively soon. The young aren't zealously committed to an economic ideology that they don't want to give up even in the face of great evidence. So, cheer up, Jonathan, there is hope. Another issue that I sincerely hope our country will take seriously is this from famed growth economist, Paul Romer of Stanford: Even if one society loses its nerve, there'll be new entrants who can take up the torch and push ahead. Mancur Olson talks about Caldwell's Law, the idea that no nation has remained truly innovative for very long. Look at Italy, and then Holland, and then the U.K., and then the United States. The pessimistic interpretation is that nobody can keep the process going. The optimistic interpretation is, Yes, you can, but somebody else comes along and the progress moves from one place to the next. We've seen individual societies where conservative or reactionary elements suppress the changes. What has protected us in the past is that there were other nations that could try new paths. You didn't have the same political dynamic everywhere at once. at: http://reason.com/archives/2001/12/01/post-scarcity-prophet I sincerely hope we all do what we can to shake off the path to third world status ideology and movement that's take over the Republican party and cost us so much over the last generation, otherwise many other countries will start passing us, as has already happened in things like percent of citizens who are college graduates, best broadband, best infrastructure. If we really start thinking that learning, intelligence, logic, and science are elitist, we won't be the richest and strongest for long.

- RHSerlin

October 22, 2010 at 1:31pm

mr_r:,"The real economic boom occurred in the latter half of the decade, after the 1997 tax cut." Ah yes, the tech bubble. That was so real and sustainable. "Lowtaxes are still a key to a strong economy" Again, ignores W's massive tax cuts which led to...what strong economy? "You guys would fail any college econ course" We're not talking theory. We're talking evidence. (By the way, I did quite well in my college econ course, so that statement is clearly false.) Cherry-picking data, conflating correlation with cause, and ignoring other economic activity which may have far greater impact than relatively minor changes in marginal tax rates does not constitute sound evidence. Again, the supply-siders were adamant that the Clinton tax cuts would kill the recovery. They were very, very wrong. They were wrong again about W's tax cuts. Those facts cannot be refudiated.

- dsimon

October 22, 2010 at 3:28pm

Dr. Irrational....before you impugn the economic education and intelligence of many who comment here, please cite your own credentials. And I don't mean fabricated paper from some for-profit, part-time, pay-for-the-degree mail order house or a right-wing wacko "think" tank echo chamber. A true student of any subject actually bases their conclusions on observations and or real-world testing of theories, not on bullet-point propaganda. It's not based on faith, like religion. It's called the scientific method. Something you and your blowhard Randian nutjobs wouldn' know anything about. Double dog dare you? What is this....... junior high?

- desertdog

October 22, 2010 at 4:19pm

dsimon; The notion that taxes destroy economic value is not debated by either liberal or conservative economists. Again the deadweight loss due to taxation is covered in every Econ course. The supply curve shift up and to the left. The debate is about whether the distortion worth it -- a purely subjective debate. desertdog; my econ qualifications: MBA in Econ and Finance from U of Chicago, Econ & Strategy analyst at McKinsey. I was also a National Merit scholar and have a BS in Computer Engineering from Illinois (which is a top 5 program). Note: I even studied Krugman textbook during my internaltion econ coursework. I can refer folks to the sections in his text that support my points if need be What are your qualifications? Could you even get an interview to be a secretary at McKinsey? My point that suppliers produce where Price = marginal cost is Econ 101. And the notion that lower prices also increase demand, while new to you, is also well accepted. Desertdog -- make a point -- what don't you understand?

- mr_rationale

October 23, 2010 at 5:11pm

mr_r: "The notion that taxes destroy economic value is not debated by either liberal or conservative economists....The debate is about whether the distortion worth it" The supply side claim is that when taxes are lower, the economy does better. Empirical evidence simply does not back up the claim. Moreover, there is a value to having taxes: they fund a government necessary to make sure society functions properly to preserve economic value. If we had a society that was funded by a single tax, and that tax was lowered to zero, I'm pretty sure that (1) the tax cut would not pay for itself, and (2) it would destroy economic value because there would be no funding for the government necessary to preserve it. So supply-siders are wrong both in practice and in theory. Yes, when taxes are high enough, they will change behavior. But there is little evidence to support the assertion that people are all that sensitive to a few percentage points differences in today's marginal income tax rates. If most people don't bother making the calculation, or if the difference won't matter much in most people's lives, then you won't see much of an effect in behavior. And that seems to have been the case.

- dsimon

October 26, 2010 at 4:25pm