To: Karl Rove, counselor to President Bush
From: Jude Wanniski
Re: A review of political history
Word has reached me that Michael Boskin, who was chief economic adviser to
President Bush the Elder, is now on the speaking circuit promising one and
all that our national economy will be doing handstands come the fourth
I hope you know that Boskin is not a supply-side economist, or he
would have sent up red flags when Bush broke his “read my lips” pledge which
caused him to lose re-election in 1992. Nor are Boskin’s pals, who are
populating the economic posts of the current Bush administration. I think I surprised you early this year when I said the Bush economists would have to
know the supply model before they could be thought of as supply-siders, and
they do not understand it.
What worries me, Karl, is that when Boskin is proven wrong this fall, and the economy does not respond to the tax cuts he and his pals designed to “put money into people’s pockets,” the New York Times and the Washington Post will announce that tax cuts don’t work! Honest-to-goodness supply-siders will get the blame. We are used to that,
Karl, so I am not simply whining about it. I simply mean to point out that
if you hope to help our young president make his way to a second term, you
may have to learn the supply model yourself so you can tell the real stuff
from the fake.
One clue: If you believe in floating exchange rates, you are not a supply-sider. Here is a guide to the 20th century I recently sent to my clients, as a reminder that only supply-side Republicans win. Please call if you would like further advice or instruction.
As Richard Nixon signed the executive order at Camp David on August 15, 1971,
that took us off the gold standard he said, “I don’t know why I am doing
this. William Jennings Bryan ran against the gold standard three times and
he lost three times.” The following short history of the Republican Party in
the last century should demonstrate that the GOP only wins the favor of the
electorate when it represents positive-sum, supply-side growth ideas, and is
punished by the voters when it offers zero-sum austerity.
Bryan, of course, was a Democrat at the turn of the 20th century. At the
time, Republicans were supply-siders, totally dedicated to keeping the
dollar as good as gold. Bryan Democrats blamed “a cross of gold” for the
squeeze on prices and wages that occurred when the government in 1873 chose
to return to gold at the pre-Civil War parity of $20.67 an ounce.
Bryan really did not run against gold, though. He argued for a return to the
bimetallic gold/silver standard that prevailed from the earliest days of the
Republic to 1863, when the Greenback Era began. He wanted debtors to be able
to pay debts and taxes in cheap silver instead of dear gold. It sounded
sweet to debtors, but was deeply flawed, as the voters realized. Here is a
supply-side rundown of how the voters reacted to presidential candidates in
the 20th century:
1. Bryan ran and lost to William McKinley twice, in 1896 and 1900, and
against William Howard Taft in 1908, McKinley and Taft defending gold.
2. Republican Teddy Roosevelt won in a landslide in 1904, with monetary
policy not at issue.
3. Democrat Woodrow Wilson won with a minority of popular votes cast in
1912. Roosevelt ran as a third-party candidate and prevented Taft from
winning a second term. Wilson’s most important economic plank was his
promise to cut the tariff rates. Taft Republicans supported the 16th
Amendment providing for an income tax.
4. Wilson won a second term in 1916 by promising to keep out of WWI but then
promptly got into it. Income-tax rates were pushed up dramatically to
finance war spending.
5. Republican Warren G. Harding won in a 1920 landslide by promising to
slash the income-tax rates and “return to normalcy.” This was the first
“supply-side” tax campaign, inspired by Pittsburgh banker Andrew Mellon, who
verbalized the Laffer Curve and dynamic tax scoring and became Harding’s
6. Republican Calvin Coolidge won another landslide in 1924 with promises of
more tax cuts, and the 1920s roared ahead. Mellon officiated at Treasury.
7. Republican Herbert Hoover won easily in 1928, promising a higher tariff
to help farmers. The Democrats adopted a similar plank. In 1929, the tariff
expanded to include everything imaginable, not just farm products. Wall
Street crashed, revenues collapsed, and Hoover raised taxes to balance the
8. Democrat Franklin Roosevelt won easily over Hoover in 1932 and Alf Landon
in 1936 as both Republicans defended the Smoot-Hawley Tariff Act.
Republicans argued for fiscal responsibility and supported higher tax rates
to balance the budget.
9. Roosevelt won in 1940 with a smaller majority against Wendell Willkie,
the first GOP candidate to back away from support of the high tariff, but
who made no issue against the high income-tax rates. FDR won a fourth term
against Thomas E. Dewey in 1944, with economic policies not at issue in the
midst of WWII.
10. Republican Dewey was favored over Harry Truman in 1948, but still made
no issue over the remaining high war-time taxes. He promised fiscal
responsibility and lost to Truman.
11. Republican Dwight Eisenhower hinted he would cut taxes if elected and
defeated Democrat Adlai Stevenson, who promised to close loopholes for the
rich, including the oil-depletion allowance. Once elected, Ike reneged; he
would not cut taxes until the budget was balanced. The top income-tax rate
remained 91 percent. In a second Ike-Stevenson contest, Ike won again.
12. Democrat John F. Kennedy said he would get the country moving again.
Republican Richard Nixon said nothing about taxes. JFK won narrowly.
13. In 1964, Democrat Lyndon Johnson pushed through the Kennedy tax cuts,
bringing the top rate to 70 percent from 91 percent. Republican Barry Goldwater led the
fight against the tax cuts and was demolished that November by LBJ.
14. LBJ escalated the Vietnam War that JFK had stumbled into and raised
taxes to pay for it. In 1968, Nixon came back with a promise to end the war
and cut taxes, and he defeated Democrat Hubert Humphrey who was associated
with the war and the Vietnam War tax.
15. Nixon raised the capital gains tax in 1968, went off gold in 1971 with a
promise to come back to it soon, overwhelmingly defeated anti-war Democrat
George McGovern in 1972, then announced he was staying off gold for good. He
was forced to resign.
16. Successor Gerald R. Ford extended the Nixon oil-price controls and in
1976 faced Democrat Jimmy Carter, who promised to end the controls and clean
up the tax code. Ford almost lost the GOP nomination to Ronald Reagan, who
promised to cut taxes and spending. Ford then lost to Carter.
17. Carter backtracked on his campaign promises to end oil-price controls
and clean up the tax code and tried to inflate his way to re-election. Gold
soared as high as $850 per ounce. Reagan defeated Carter with promises to
cut income-tax rates by 30 percent and end inflation. In 1984, Reagan coasted to
re-election over Walter Mondale, who had promised to raise taxes.
18. Republican George Bush promised “read my lips, no new taxes,” and pledged to cut the capital gains tax to 15 percent. Michael Dukakis campaigned against cutting the capital gains tax and lost. In Bush’s first year, he gave up on his capgains promise. In his second, he raised taxes.
19. Democrat Bill Clinton in 1992 promised a middle-class tax cut and
defeated Bush, whose tax hike led to a recession. Clinton raised taxes on
high incomes and the Democrats lost control of both houses of Congress. In
1996, Republican Bob Dole, a lifetime opponent of tax cuts, embraced a weak
tax plan that supply-sider Jack Kemp had opposed before joining the ticket.
Clinton won easily and joined with the Republicans in cutting the capital
gains tax to 20 percent. The stock market boomed and the dollar got stronger and
stronger and stronger and stronger.
20. Texas Republican George W. Bush won by a single electoral vote, outvoted
in the popular vote by Democrat Al Gore. Both conceded monetary policy to
the central bank chairman Alan Greenspan, with no discussion on whether or
not to end the current greenback era of floating dollars. Bush’s tax plan,
designed by conservative Keynesians, was zero-sum, rejecting any reductions
in the capital gains tax. President Bush continues to lead the party in a
demand-side economic model, leaving an opening for the Democratic Party in
the 2002 and 2004 elections.