SYNOPSIS: Takes a look at the continuning allure of Supply-Side theory. Concludes that it plays nicely to the prejudices of the wealthy.
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 20th-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.