The movement’s main founder, Robert A. Mundell, wrote prolifically on the subject avant la lettre in top economics journals in the 1960s and 1970s. Mundell’s protégé at the University of Chicago, Arthur B. Laffer, did the same, then branched out to a consulting business where he put out some 50 papers per year that dilated on supply-side economics.
Archives? The Hoover Institution in California has hundreds of boxes of papers of the first journalistic supply-siders, Wall Street Journal editor Robert L. Bartley and his assistant Jude Wanniski. As for supply-side economics’ Congressional lodestar, Jack Kemp, there are more boxes on end at the Library of Congress.
I looked and looked at all this stuff, and a definition emerged clear as the sky. This was that supply-side economics favored a particular way of solving the kind of recessions we have been prone to since the founding of the Federal Reserve and the income tax, both in the year 1913. This is to stabilize the dollar and cut taxes.
This definition—stabilize money and cut taxes—was repeated so often, so uniformly, and over so much time by the original supply-siders that it became possible to identify a canonical statement, the Ur-document, the quintessential rendering of the supply-siders as to their philosophy.
This is it, from a paper Mundell wrote in 1971: “The correct policy mix is based on fiscal ease to get more production out of the economy, in combination with monetary restraint….The increased momentum of the economy provided by…a tax cut will cause a sufficient demand for credit to permit real monetary expansion at higher interest rates.”
As for details, to a one the supply-siders favored tax cuts of the marginal and capital-gains variety, and monetary stability in the form of a gold-anchored dollar.
Readers of this column can be forgiven for asking if I haven’t been repeating myself. Haven’t I availed of the above Mundell quotation in recent columns, keen to point out that supply-side economics is a policy mix of two things, stable money and marginal tax cuts?
Indeed I am repeating myself—for an all too appropriate reason.
Last week, for the umpteenth time, a major, credentialed economist wrote an article, one read far and wide, contending that supply-side economics has to do exclusively with tax cuts. There is probably no bigger economics blogger than Mark Thoma, and marginal-tax-cuts-equal-supply-side-economics is what he made his supposition in “Why the GOP Won’t Admit Supply-Side Econ Has Failed.”
You can click on the link to see Thoma go about all this, but the essential thing is as follows. There is no credible historical evidence ever produced by a scholar that has served to delink monetary issues from the core doctrine of supply-side economics. In fact, all primary evidence ever produced as to the central claims of supply-side economics has confirmed that supply-siders insisted that monetary restraint and progress toward a gold standard is as crucial as any kind of tax policy. To say otherwise is to speak in the absence of evidence.
But in current circumstances, you see how it can be so…tempting…to say that supply-side economics was only ever a policy of tax cuts. This is because the George W. Bush tax cuts—those things on the chopping block in this fiscal cliff drama—supervised a mere boomlet in the mid-2000s, and then the Great Recession after 2008. If you trash W.’s policy by calling it supply-side, then by association you can discredit the Reagan success too. Conservative economic policy: a comprehensive failure in its decades-long response to Keynes!
Go back to the record ten years ago and see if the supply-siders were unconcerned about monetary issues, as the Bush-era Fed made money as loose as it was in the 1970s. See if Robert Mundell quit on the idea of a unitary dollar-euro exchange rate and an anchor akin to gold. See if the second generation of supply-siders, the next round of journalists and Congressmen (such as Kemp trainee Rep. Paul Ryan) didn’t call out the money-printing 2000s as making the W. tax cuts nothing but a “small, ambiguous reprise” of the great tradition, as I would put it in the book, Econoclasts, which came out in 2009.
But “everyone knows” that supply-side economics’ main, if not exclusive concern was with tax cuts, and that’s good enough for Mark Thoma. Cui bono from burying the true history of the objectives of supply-side economics? Fiscal-cliff corner-cutters and their enablers, but certainly not sincere political economists trying to master our recent history for the purpose of getting our once-great economy back in good repair.