THE SUPPLY-SIDE REVOLUTION: An Insider's Account of Policymaking in Washington by Paul Craig Roberts
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THE SUPPLY-SIDE REVOLUTION: An Insider's Account of Policymaking in Washington

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Roberts is one insider whose creed is and has been pure supply-side economics: as a congressional staffer, first for Representative Jack Kemp and later for the House Budget Committee; next, as a Wall Street Journal associate editor and columnist; then, as Assistant Secretary of the Treasury for economic policy. According to the creed, tax cuts on marginal income will restore the incentive for earning new Lucome necessary for economic growth and prosperity. The pure creed is distinct from doctrines like the Laffer Curve, since Roberts, Kemp et al. are relatively unconcerned with budget deficits; Roberts believes that the total tax revenue, which would fall off with the tax cuts, would subsequently rebound, but he doesn't want to predict the height of the rebound. The main thing is the cut, pure and simple. This, however, is the story of how supply-side doctrine got distorted and finally railroaded by its opponents in the Reagan administration--chiefly Office of Management and Budget boss David Stockman. The supply-siders' allies were the monetarists. In their joint formulation of Reaganomics, as Roberts explains it, inflation is supposed to be controlled by slow but steady growth in the money supply, while supply-side inducements stimulate GNP growth, The net result: economic growth without inflation. But, says Roberts, if you believe in things like the Phillips curve, which postulates a trade-off between inflation and unemployment, there seems to be a conflict between the monetarist desire to reduce inflation and the supply-side wish to stimulate growth; and since the media are populated with adherents of that view, reports quickly circulated about conflicts within the administration. Roberts points out that neither his group nor the monetarists believes in the Phillips curve; for them, economic growth without inflation is possible through productivity increases. The real conflict was between the monetarists and pure supply-siders, on the one side, and the proponents of a balanced budget, on the other. It was Stockman, primarily, who opposed tax cuts beyond a certain point, advocated new taxes, and sought to slash expenditures. This position was abetted by the Laffer Curve enthusiasts' suggestion that a balanced budget would result from reduced taxes, including reduced corporate taxes. The marginal income-tax reducers were caught in the middle of these real differences--with additional confusion coming from leaks to the media. The failure of the administration's monetarist policies to influence interest rates, combined with failure on the deficit front, allowed Reagan to be maneuvered into tax increases. Volcker, Greenspan, and other principals join Stockman in the rogues gallery--allegedly prey to old or confused theories and interested in their own egos. Roberts is as single-minded as his convictions; but his story is not only informative--with the best insights yet on conflicts within the administration--it is also a good account of what all the vague ideas associated with Reaganomics are about.

Pub Date: Feb. 1st, 1983
Publisher: Harvard Univ. Press