Supply-Side Virus Strikes Again
By now there have been
hundreds of articles explaining why Bob Dole's economic plan, which relies on
the magic of supply-side tax cuts, won't work. And there have been hundreds
more explaining why Dole, whose contempt for people who believe in that kind of
magic is a matter of public record, nonetheless chose to accept their
program--and chose one of the most prominent believers as his running mate. I
have nothing to add to all of that. But it seems to me that the success of the
tax cutters in taking over yet another presidential campaign requires a deeper
explanation. Why does supply-side economics have such durability?
It should
go without saying that the supply-side idea--which is that tax cuts have such a
positive effect on the economy that one need not worry about paying for them
with spending cuts--does not persist because of any actual evidence in its
favor. If you want, any nonpartisan economist can explain to you at length what
really happened during the Reagan years, and why you can't seriously claim his
record as an advertisement for supply-side policies. But surely it is enough to
look at the extraordinary recent record of the supply-siders as economic
forecasters. In 1993, after the Clinton administration had pushed through an
increase in taxes on upper-income families, the very same people who have
persuaded Dole to run on a tax-cut platform were very sure about what would
happen. Newt Gingrich confidently predicted a severe recession. Articles in
Forbes magazine urged readers to get out of the stock market to avoid
the inevitable crash. The Wall
Street
Journal editorial
page had no doubts that the tax increase would sharply increase the deficit
instead of reducing it. Well here we are, three years later: The economy has
created 10 million new jobs, the market is up by 1500 points, and the deficit
has been cut in half. I'm not saying that Clinton's policies led to that
result--they account for only part of the good news about the deficit, and
hardly any of the rest. But the point is that the supply-siders were absolutely
sure that his policies would produce disaster--and indeed, if their doctrine
had any truth to it, they would have.
Nor, I would argue, do supply-side views spread because
they are good politics. True, Ronald Reagan won on a supply-side platform--but
one suspects he would have won on almost any platform, and that the taunts of
"voodoo economics" actually cost him some votes. Today, the supply-side label
is a clear liability. Even promoters of the concept shy away from the label. In
1994, Republican leaders like Gingrich and Dick Armey chose to conceal the
extent of their tax-cutting fervor from the voters, who they judged would not
trust an economic program based on supply-side assumptions. And the word is
that even Republican focus groups--the same groups that were used to craft the
Contract With America --have reacted scornfully to the idea of an
election-year tax-cut promise. This is partly, of course, because they doubt it
will really happen. But it is also because they doubt it would have the
promised beneficial effect.
So why
does the supply-side idea keep on resurfacing? Probably because of two key
attributes that it shares with certain other doctrines, like belief in the gold
standard: It appeals to the prejudices of extremely rich men, and it offers
self-esteem to the intellectually insecure.
The support of rich men is not a small matter.
Despite its centrality to political debate, economic research is a very
low-budget affair. The entire annual economics budget at the National Science
foundation is less than $20 million. What this means is that even a handful of
wealthy cranks can support an impressive-looking array of think tanks, research
institutes, foundations, and so on devoted to promoting an economic doctrine
they like. (The role of a few key funders, like the Coors and Olin Foundations,
in building an intellectual facade for late 20 th -century
conservatism is a story that somebody needs to write.) The economists these
institutions can attract are not exactly the best and the brightest.
Supply-side troubadour Jude Wanniski has lately been reduced to employing
followers of Lyndon LaRouche. But who needs brilliant, or even competent,
researchers when you already know all the answers?
The
appeal to the intellectually insecure is also more important than it might
seem. Because economics touches so much of life, everyone wants to have an
opinion. Yet the kind of economics covered in the textbooks is a technical
subject that many people find hard to follow. How reassuring, then, to be told
that it is all irrelevant--that all you really need to know are a few simple
ideas! Quite a few supply-siders have created for themselves a wonderful
alternative intellectual history in which John Maynard Keynes was a fraud, Paul
Samuelson and even Milton Friedman are fools, and the true line of deep
economic thought runs from Adam Smith through obscure turn-of-the-century
Austrians straight to them.
And so it doesn't really matter whether supply-side
economics makes any sense, or even whether it goes down to a crushing electoral
defeat. The supply-siders will always have a safe haven in the world of Free
Enterprise Institutes and Centers for the Study of Capitalism, outlets for
their views in the pages of Forbes and the Wall
Street
Journal , and new recruits who never tire of saying the same things again
and again. When I was younger I thought that ridicule could eventually bring
the whole farce to an end, but now I know better. Presumably the pundits are
right, and Dole's desperate ploy will fail. But while that will be the end of
him, the supply-siders will be back.
Biologist Richard Dawkins has
argued famously that ideas spread from mind to mind much as viruses spread from
host to host. It's an exhilaratingly cynical view, because it suggests that to
succeed, an idea need not be true or even useful, as long as it has what it
takes to propagate itself. (A religious faith that disposes its believers to
become martyrs may be quite false, and lethal to its adherents, yet persist if
each martyr inspires others.) Supply-side economics, then, is like one of those
African viruses that, however often it may be eradicated from the settled
areas, is always out there in the bush, waiting for new victims. I had expected
Bob Dole, with his worldliness and sharp wit, to have stronger immunity than
most. But weakness in the polls made him vulnerable, and he will never
recover.
