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Defending supply-side economics
Posted By Jude Wanniski On 04/25/2001 @ 1:00 am In Commentary | Comments Disabled
To: Robert Reich
From: Jude Wanniski
Re: Your debate with Jack Kemp
Your joint appearance with Jack Kemp on Sunday’s “Late Edition” with Wolf Blitzer last weekend reminded me that you never made the slightest attempt to discover what supply-side economics was and what it was not. Because you were only the secretary of labor in the Clinton administration, which kept you out of the economic policy loop, perhaps that is understandable to some degree. But I was astonished to hear you several times peremptorily dismiss Jack’s recommendations on how to deal with the current economy.
He would say: “We should do X and Y and maybe a little bit of Z,” and Wolf Blitzer
would turn to you, and you would say, “That’s supply-side economics, ha-ha. We already tried that and we know it doesn’t work. All we got was those big budget deficits.” Jack was frustrated, but tried to be nice, although I wish he hadn’t been. It really is a sign of the arrogance of Ph.D. economists — who think they know it all — that so few have the slightest idea of what passed under their noses during the past 20 years.
About a dozen years ago, I remember the Washington Post doing a story about how the economic “gurus” of the 1980s were Jude Wanniski and George Gilder and why the “gurus” of the 1990s would be Robert Kuttner and Robert Reich.
I was amused that the Post decided that I was a “guru” only after they decided I was dead and buried. In the entire decade of the 1980s, during my “reign,” Post editorial writers or editors called me exactly once to get my view of the way the world was working.
Still, I was prepared for a counterrevolution, which is what we got in the years that followed the Reagan presidency, and I was curious to learn about the new “gurus.” I read up on your views, looking for insights that I might steal from you and absorb into my analytical framework. Finding none, I turned to Kuttner, publisher of American Prospect, and found him a fresh voice in the Keynesian demand-side world. I offered to engage him in public debate, via an exchange of papers or letters. He decided I already was dead, having read about me being “toast” as gurus go, and I never could get a response. My assumption, based on a study of human nature, is that he knows I would embarrass him in such a debate, and he would no longer be considered the new guru on the block.
The problem for Jack Kemp is that he was in the Bush Cabinet when it flushed supply-side economics down the drain. You must have taken a course in debating when you were in college, as you shrewdly noted the Clinton administration in 1993 had inherited “the Reagan-Bush deficits.”
This is the same thing clever Democrats did a few generations back in blaming the Great Depression on “Harding, Coolidge and Hoover,” when the same situation
applied. Harding and Coolidge were supply-siders of the first order, which is why the ’20s roared. Hoover was the George Bush of his day, a representative of the Old Guard demand-siders, who believed tariff and tax increases would be just peachy.
It would have been nice if Jack said, “Just one cotton-pickin’ minute, Reich. George ‘read-my-lips, no-new-taxes’ Bush inherited a vibrant economy from Ronald Reagan, with deficits falling steadily as a percentage of GNP. Then he broke his campaign promise, raised taxes, and presto, recession and the deficit rising as a percentage of GNP.” Alas, Jack is reluctant to criticize the president he worked for, because he was in the Cabinet and did not oppose the tax increase. He’s a team player, on the GOP team.
I’m not, Professor Reich. My allegiance is not to a political party. I’ve belonged to both of them in my 65 years. My allegiance is to the supply-side model, which I am more or less responsible for having merged out of the ideas of two economists, Art Laffer of Ohio, and Bob Mundell of Ontario.
I never formally studied economics, professor, which is how I could become a “guru.”
As a result, I am in a perfect position to teach you supply-side economics, to fill in that hole in your professional training. I would do so free of charge, as long as you agree to what I offered that other would-be “guru,” Bob Kuttner. You make your argument, in 1,000 words or less, and I make my response, in 1,000 words or less. If you find that I am leaving out some of your arguments, or behaving badly, you can bow out. At the end of the process, I guarantee you that you will know a lot more about supply-side economics than you know now.
In the last quarter century, other supply-siders, like Kemp, have drifted off in one direction or another, making their peace with demand-side monetarists or conservative Keynesians. But I have not devalued the model, so I always can back up anything I say, looking back, with published work. For example, I advised my clients in 1993 that the Clinton tax increases were not good for the economy, but would not cause serious damage, because the capital-gains tax had not been raised and because monetary policy was still a positive influence.
As for the deficits, I have for all this time made the case that they were the result of Nixon going off the gold standard in 1971, which produced an inflation that Reagan inherited. The price of gold was $620 per ounce when Reagan was elected. If it had stayed at that level, the price of gasoline would have gone to $3 a gallon. If you wish to learn about the discussions and debates that went on at the Fed and in the Reagan administration, I could help you, because I was involved behind the scenes every step of the way. The deficits were absolutely necessary, as the cost of coping with the inflation that was unfolding in the Nixon-Ford-Carter years.
My offer to you is a serious one, Professor Reich. In the exchange I propose, both you and I will learn a lot more about the way the world works than we know now. With a million hits a month on my website, I can assure you that our friendly exchange would get lots of attention and have a positive influence on the world economy.
There is room for more than one “guru” on the planet.
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