Those Wild 'n' Crazy Supply-Siders
The single-mindedness--OK, fanaticism--of the supply-siders who helped
orchestrate the Reagan tax cuts of the 1980s never fails to astonish. These
guys really are today's equivalents of what we used to call vulgar Marxists,
only instead of explaining everything that happens as a product of the class
structure, they explain everything that happens as a product of tax rates, and
they are unwavering in their insistence that the lower taxes are, the better
everything will be. By this point, they can be fazed neither by
experience--like the performance of the U.S. economy since the 1993 tax
hike--nor by theory.
There's an excellent demonstration of this ability to avoid the real world
in the latest issue of Business Week , which features two different
columns on economist Robert Mundell's Nobel Memorial Prize in Economics (which
our own Paul Krugman recently dissected). The first is by Robert Barro, a conservative economist
to be sure--and one who has no love of taxes (or of government, for that
matter), but also someone with a firm grasp on reality. His column is therefore
a fond tribute to Mundell's work in international macroeconomics, a field he
practically invented, and to his influence on current thinking about exchange
rates and monetary policy. This is, as Barro notes, the work for which Mundell
won the Nobel.
Now, Mundell also went on to work on--or speculate on--the supply-side
effects of tax cuts, and this work was obviously important to the Reaganauts.
But as Barro himself writes, "Whatever the merits of supply-side economics and
Reaganomics--and I would say there are many--these ideas had nothing to do with
the work that resulted in a Nobel prize."
And yet just 15 pages later, in the very same issue, Paul Craig Roberts,
among the truest of the supply-side cadre's true believers, begins his column
with these words: "Robert A. Mundell's Nobel Prize has deprived supply-side
economics of its voodoo status." Of course, he doesn't then go on to actually
offer any evidence that the Nobel committee was impressed by or even interested
in Mundell's supply-side work. (He can't because there is no evidence.) He just
retells the story of how a "handful of supply siders ... gained control of
policy" and saved the world.
Oh, actually he does one other interesting thing, arguing that supply-siders
deserve credit for a great unrecognized feat: "the integration of micro- and
macroeconomics." Before them, no economist saw that there might be links
between the way companies and industries behave and the way national and
international economies behave. This is, needless to say, an announcement that
will come as quite a surprise to most economists.
The problem with the supply-siders isn't, of course, that tax cuts are
always a bad idea, or that emphasizing the effects of tax cuts on supply as
well as demand was a mistake. It's that their faith in supply-side economics is
a religion. Its premises cannot be questioned, let alone refuted, and even
things to which it's irrelevant--like Mundell's Nobel prize--have to be
understood in its light. The odd thing is that this approach makes it
impossible to take people like Roberts seriously, which raises the obvious
question: why does he keep writing?
On the other hand, I keep reading. So maybe that's an answer.
