Bruce Bartlett, one of the Republicans behind the supply-side revolution in the early 1980's, has an interesting piece in today's NYT. Short version? However useful "supply side economics" once was, it now needs to be retired.
When I read the article on the T this morning no my way to class, my plan was to come how and write something about the transformation of the supply side idea from a theory of economics into a movement, detailing how cutting taxes had gone from a means to achieving economic growth to an end in and of itself.
Then I got home, saw Kevin Drum's post on the topic, and followed the link to Mark Thoma's blog. There I discovered that Bartlett himself was engaging in a spirited Q+A with not just Thoma, but with Paul Krugman as well! And yes, at this point I have to admit that we are now WAY out of my league.
So please, go read. The initial analysis is far too much for me, but the discussion in the comments section is really fascinating. Bartlett's first comment is particularly important:
I think Mark misses the historical context of my analysis. In the 1970s, we were unaware of real business cycle theory or New Keynesian theory. We were confronting Old Keynesian theory. What Mark has basically done is take a current theoretical debate and superimposed it on the 1970s. That's fine if one's goal is to understand how the economy really worked in the 1970s or what the actual effects of policies taken at that time were. But as a matter of history, it is misleading. We didn't know any of this stuff because it didn't exist then. We were dealing with a far different situation in terms of what people knew about the economy (or thought they knew) and that's one reason why I believe that terms like "supply-side economics" have outlived their usefulness. The context in which the term had meaning no longer exists and therefore it has become a barrier to communication rather than a facilitator.
It is a simple point, but one that is far too often overlooked in the study of history. At the time events were unfolding, no one knew what was going to happen next. It's a point I make endlessly with my students when discussing political history. Take the Great Depression, for example. We now how it ends. In 1933, however, many very serious scholars and policy-makers believed that capitalism had been discredited forever. Thus, the New Deal wasn't simply an attempt to solve a short-term problem; it was also an attempt to figure out how to reconstruct our entire economic order. We now know what worked well and what didn't. But we only know that because the people alive at the time lived through the process of figuring it out.
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