Commentary: Time tested supply side - what about the stimulus?
This article first appeared in the St. Louis Beacon, April 8, 2010 - I recently Googled myself. The process was not nearly as painful as it sounds. Simply type in your name, click on "search" and -- presto -- you find out where you stand in cyberspace.
Being a son of the 20th century, I can't be found on Facebook, MySpace or other social networking sites. Some of us still believe in the virtues of keeping details of your private life, well, private. However, a lot of the stuff I've written over the years is still floating around out there.
One of the pieces I came across was a November 2002 column I wrote shortly after the Republicans had ascended to the majority in the Senate, at the time giving the GOP control of both houses of Congress, as well as the White House.
The article originally appeared on the website, TomPaine.com ; an excerpted version runs below. In it, I argued that the Republican supremacy would finally put the "voodoo economics" of Ronald Reagan to the test. Listen:
... The supply-side theory is essentially a reformulation of the venerable fiction that wealth at the top of the economic pyramid "trickles down" to those below. By this reasoning, Brazil -- where an elite few own virtually all of the wealth -- should be the most prosperous nation on earth.
The concept's modern incarnation first entered the political arena during the 1980 primaries, when Ronald Reagan advanced the counterintuitive notion that cutting tax rates would increase tax revenue. At the time ... George H. Bush ... labeled the proposal "voodoo economics."
Talk of witchcraft soon vanished, however, when George I -- ever the team player -- joined the Reagan ticket as its vice-presidential nominee. The theorem that reduced taxes would stimulate economic growth and thus enhance revenues subsequently became a right-wing staple.
When Reagan actually implemented his plan, of course, nothing of the sort transpired ... (H)is tax cuts plunged the nation into record deficits that would persist until two tax increases, a "peace dividend" and the unparalleled growth of the '90s finally combined to stem the flow of red ink.
Undeterred by disastrous outcomes, supply-siders blamed the profligate Democrats who controlled Congress for the mess. It seems that their appetite for domestic pork had undermined the experiment. The debate thus remained a theoretical stalemate until the '02 elections gave W. Bush the mandate he'd sought.
The ideological scion of Reagan rather than of his patrician and relatively moderate father, the younger Bush would never renege on a "read my lips" pledge simply to accommodate fiscal reality. Relieved of the strictures imposed by a hostile legislature, he's now free to test the theory that our economic doldrums are the result of rich people not having enough money.
... (S)hould welfare for the wealthy fail to stimulate ... consumer demand, supply-side enthusiasts will fabricate another explanation for their creed's failure. Like all true believers, they're amazingly resilient in the face of contradictory empirical data. After all, they've argued for decades that any increase in the minimum wage will result in job cuts even though this phenomenon has never, in fact, occurred.
In theory, wage hikes should cost jobs because they inflate the cost of labor. In reality, this doesn't happen because employers hire workers to satisfy demand for their products, not because labor's cheap. Layoffs take place when demand ebbs.
Understanding that simple fact suggests that the surest way to stimulate economic growth is to give consumers more money to spend--demand-side economics, if you will. Unfortunately, that humble notion fails to justify huge windfalls for the country club set and will thus attract few proponents in the current political climate.
Boxing is sometimes called the "sweet science" because it subjects all conjecture to the test of the ring. Supply-siders are about to step back between the ropes--this time without a fall guy to blame for their shortcomings. Let the match begin.
By now, we all know how that contest turned out. After taking a couple of standing eight-counts, the economy finally went down for good before W. left office. The one-two punch combination of deregulated markets and spirally deficits was just too much for the poor pug.
Obama's efforts at resuscitation are thus far difficult to judge. There are recent, tentative signs of emergent recovery, but the unemployment rate remains an intractable problem and deficits have increased at an alarming rate.
Some economists -- notably Nobel Prize winner Paul Krugman -- argue that this is precisely the time for deficit-spending and that the president should actually have spent more. Others contend that he's merely throwing gas on the fire of run-away debt.
Like Bush after the '02 elections, Obama currently enjoys a friendly Capitol Hill. His stimulus plan will stand or fall on its own merits without the convenience of a congressional scapegoat to shoulder the blame.
Meanwhile, the present economic situation was rather succinctly summarized by a headline I saw on the Business page of the March 26 St. Louis Post-Dispatch. It read, "Sisters of Mercy cut 113 jobs here."
M.W. Guzy is a retired St. Louis cop who currently works for the city Sheriff's Department. His column appears weekly in the Beacon.