THE PLANK NOVEMBER 9, 2007
Apparently supply-siders don't like it when you point out that their theory is nutty and some of its most prominent advocates are lunatics. Only the first chapter of my book deals with supply-siders per se -- the rest is about the general way that the Republican Party has been taken over by the economic far right, and how it has managed to redefine the boundries of American politics -- but that part has recieved far more blowback than anything else. Writing in the Wall Street Journal today, Stephen Moore insists that supply-side economics is nothing more than the modest idea that tax rates can effect incentives:
In recent weeks, the New York Times, the New Yorker, the New Republic and many other liberal publications have devoted great space and attention to attacking the entire theory that lower tax rates can increase incentives for investment, saving and work.
But, of course, every economist realizes that tax rates have some effect. The difference is that the supply-siders take this small observation and blow it up into a monocausal explanation of the world. Their monomania is what makes them claim that tax cuts at current levels can cause revenues to rise, or that small rate hikes like those imposed by George H.W. Bush or Bill Clinton could -- nay, must -- cause a recession. As I wrote both in the book and the TNR excerpt:
Like most crank doctrines, supplyside economics has at its core a central insight that does have a ring of plausibility. The government can't simply raise tax rates as high as it wants without some adverse consequences. And there have been periods in American history when, nearly any contemporary economist would agree, top tax rates were too high, such as the several decades after World War II. And there are justifiable conservative arguments to be made on behalf of reducing tax rates and government spending. But what sets the supply-siders apart from sensible economists is their sheer monomania. You could plausibly argue that, say, Reagan's tax cuts contributed around the margins to the economic growth of the 1980s. But the supply-siders believe that, if it were not for Reagan's tax cuts, the economic malaise of the late '70s would have continued indefinitely. They believe that economic history is a function of tax rates--they insisted that Bill Clinton's upper-bracket tax hike must cause a recession (whoops), and they believe that the present economy is a boom not merely enhanced but brought about by the Bush tax cuts.
Also, hilariously, Moore rebuts the idea that the acceptance of supply-side economics was helped along by the fact that it benefits the rich thusly:
Supply-side economics is also denounced as a flim-flam whose sole purpose is to give jumbo-sized tax handouts to corporations and high-income earners. Since so many upper-income and wealthy Americans are Democrats, however, it's not clear why Republicans would be so preoccupied with helping them.
Yeah! Why would rich people favor policies that increase their own wealth if some of the beneficiaries were Democrats? I mean, that would just make no sense at all.