Tuesday, December 15, 2009

Supply side won't save us this time

David Frum has an interesting review on the Frum Forum on Bruce Bartlett's book The New American Economy.

Bruce Bartlett was one of the original supply-siders. He shows that in the 1970's and 80's, three US Presidents (Nixon, Ford, and Carter) had all tried, and failed, to effectively fight the sluggish economy and high inflation of the time.

At the time, most economists were saying that a recession and inflation cancelled each other out and couldn't exist at the same time, even if the reality was disproving the theory.

A small, "dissident" group of economists came up a way to fight non-inflationary growth: supply-side economics. And it worked. "Carter's Recession" as Reagan called it, ended, thanks largely to supply side economics.

But Bartlett argues further that supply-side is not a cure all. It was a cure for the '70s and '80s stagflation. Supply side economics were "...elegantly designed to counter stagflation. Other problems required other solutions. And boy, do America and the world now face other problems: deflation, debt, and the failure of economic growth to translate into rising incomes for most Americans."

I like the way Frum ends his review:

"A free-market economic policy for our time would stress reflation to combat deflation and a payroll tax holiday to spur job creation. It would propose health reforms to control costs and thus boost middle class incomes and slow the rise in government spending. It would, as Bartlett has done, call for consumption taxes to balance the budget and avert the payroll and income tax increases that will otherwise befall.

Such a policy would depart from present conservative orthodoxy. But the supplysiders departed from the conservative orthodoxy of their day, and we admire them for it! We do not honor them by refusing to emulate them."

5 comments:

Dave Miller said...

Hold on James. Are you saying that President Reagan, after he took office was blaming the recession of the early 80's the "Carter Recession?"

Does that mean that Reagan was a presidential coward along the lines of Barack Obama for not taking immediate ownership and responsibility of the horrible economy he inherited?

Just askin...

James' Muse said...

I don't think either were cowards...I think it's fine to let the Pubic know where the fault lies and what you're doing about it. The public has a short memory. It was, what, a month into Obama's presidency that they were blaming him for all the world's ills, from the recession to the wars to bad weather?

TRUTH 101 said...

So thirty more years of deficit spending and tax cuts for the wealthiest are the cure for what ails us James?

I'm not sure what your premise is with this post my friend.

All our prosperity has been borrowed. To keep us from another depression required more borrowing. The ponzi scheme of supply side economics may never end. We're at a point where we have to fight fires with flame throwers.

James' Muse said...

Truth: the point of my post is that supply side was never meant to be a thirty year plan, but a "stimulus" in it's own. Just as if we were to keep doing what Obama did with this omnibus for thirty years we'll be ruined.

Supply-side was a solution to a specific problem, but instead the GOP turned it into a long-term fiscal standard.

We need to find unconventional ways to fix this recession, not do what the GOP has been (advocating nonstop supply side).

Chain-mail was a solution to the threat of a sword slash. It worked. But it won't stop a bullet. For that you need kevlar, which in turn won't stop a sword. Specific problems, specific defenses.

Patrick M said...

A consumption tax?

Being a FairTax person, that idea warms my heart.

Right now, though, we continue to be subjected to a tax structure that is used to buy votes, while not addressing the spending issue (unbridled deficit spending only works in short periods, not over 30 years either). No currently offered tax scheme that relies on the current code will work to solve what is a spending issue.