The whole premise for "supply-side" economics has been discredited...

[kentuck]

They first got the religion during the Reagan years. They accepted as blindly as they accept their religious belief, that if you give money and tax breaks to the wealthy, it will "trickle down" to the less fortunate like manna from Heaven. Reagan tried it and it went awry very quickly. He was forced, with the assistance of Majority Leader Bob Dole, to increase FICA taxes. They did it under the pretense of "saving" the Social Security System, but the real purpose was to get revenues for an ever-increasing deficit. It was Keynesian economics gone wild!

It worked to some degree, at least in creating some jobs, but the downside were humongous deficits that continued even after increasing the FICA taxes on average working people. They also insisted that those people getting unemployment checks would start to pay income taxes on their checks. That piece of crap legislation is still with us today, as is the increase in FICA taxes.

Then when Daddy Bush came along, the deficits continued to balloon. Many of the proponents of trickle-down scratched their heads in disbelief. Why wasn't it working like it was supposed to? Finally, after saying, "read my lips, no new taxes", Daddy Bush saw the writing on the wall. The deficits had to be brought under control. He agreed to a small tax increase, just to show the markets he was serious. And actually, as we now know, the economy was starting to move upward slightly during the last few months of the Daddy Bush Presidency.

And we all know how well the economy performed during the Clinton years. He raised taxes on the top 1 1/2% of income earners and the markets could see that he was serious about bringing the deficits and spending under control. In fact, the Clinton/Gore years led to decreases in government spending.

Then along came Jones. Otherwise known as Dubya, down in Texas. He insisted on re-implementing the Reagan "supply-side" policies. Cut taxes as much as you can and stifle all government growth for programs that people use, or as Grover Norquist opined, get it small enough to drown in a bathtub. And now we see what happened.

Even though they say it was the mildest recession in memory, it has driven us into stratospheric deficits. They say it was because of the war and 9/11 but the numbers just don't add up. They have turned a plus $5 trillion surplus into a minus $5 trillion deficit! Supply-side has been totally discredited even though many of the true believers are slow to admit the idiocy of such nonsense.

Mostly because this has been the premise they have hung their entire political fortunes upon, and there are no more arguments with which to defend it. They cling to the last thread of the fabric, hoping against hope that somehow they will be proven correct. Hopefully, they won't hold their breath...then again...

[Dudley_DUright]

1. You correctly point out that for many supply siders

it is a religion and not a rational economic position. No amount of contrary evidence will shake their "faith". Personally, I think it was throughly discredited during the Reagan years.

[hadrons]

2. "supply-side" economics has always been discredited

Here are some of the tax increases during the Reagan years
In 1982 over $230 billion in tax increases. This included the Tax Equity and Fiscal Responsibility Act (TEFRA), the biggest tax hike in history up to that time, $214 billion in its first five years, or $2,562 per household. As chairman of the Senate Finance Committee, Bob Dole was key to convincing the Reagan White House to go along with the massive tax hike. Without TEFRA, Dole said at the time, "the deficits wouldn't go down." The deficit soon shot to record heights anyway.
In 1983, Social Security tax increases, a seies of automatic tax increases totalling $58 billion in the first five years, or $691 per household.
In 1984, Finance Chairman Dole steamrolled through the $132 billion Deficit Reduction Act (DEFRA), totalling $890 per household.
In 1985, $13 billion Consolidated Omnibus Reconciliation Act(COBRA) bill totalling $150 per household.
In 1986, increase capital-gains taxes in a trade-off which reduced marginal income tax rates, all part of the "revenue neutral" Tax Reform Act. In addition to nearly $23 billion in other assorted tax

Of course the loser Limbaugh crowd likes to shout "Democratic Congresses" while not mentioning that the Repukes controlled the Senate and Congress never overrode a Reagan veto on spending measures

[msmcghee]

3. A great deal of RW policy is faith based.

They have a very strong psychological need to be "right" as in correct - and I believe that's what leads them to follow politicians who claim that morality is absolute and they to have all the answers. They can't handle nuance. They are vulnerable to any crackpot schemes that offer them such assurances.

Supply side economics is one. Another is fundie type religion.

[poskonig]

12. "Faith based economics." I like it!

:kick:

[Nicholas_J]

4. Yup

When Laffer came up with the theory, no other economists accepted it as sound. But When Republicans, especially Reagan read about it, they found a "legitimate economis"t who said something to justify their fiscal conservatism regarding taxation The only time taxation could possibly have the effects that Laffer describes is when they excessd 95 percent. His whole premise is shot by the fact that the largest peoriod of economic growth in the nation occurred during the peoriod of its highest taxation. The rates of taxation that existed after Kennedy were not high enough to cause such a regression in investment.
And the fact that people with the inclination to try to get rich are going to do so whether they can make a million or ten million.

[OldSoldier]

9. What shoots down Laffer's theory?

If you haven't read it, do a Google search for "Laffer curve."

The whole paper that sprung supply-side on the world is full of complex mathematical formulae meant primarily to confuse the unknowing. (Laffer's paper is the economist version of an Ann Coulter book: throw enough footnotes, formulae or whatever in and people won't realize you're talking out of your ass.) But basically, it says that when tax rates are higher than a "sweet spot" rate, which you find by cutting taxes until revenues go up, people are disincentivized to work. Hence, make taxes too high and people will start working less hours, taking jobs at McDonalds instead of at Kohlberg Kravis, and so on.

When I read that part, I immediately knew Laffer's Ph.D. came out of a Cracker Jacks box.

It would have been far more believable if he would have said something about how high tax rates encourage the underground economy. I don't think there's anyone who is as worried about taxes as Laffer is. I mean, if you're in the average-person brackets, you bitch and moan, or give lots of money to your church. If you're in Cheney's bracket, you call your tax professional or the congressman you own. But not working because taxes are too high? I think not.

[Mel]

11. kinda like

if you can't dazzle em' with brilliance, you baffle em' with bullshit-Laffer's paper?

[edward]

13. Nobel prizes in economics

have been rewarding "mathematically" based research. Based on
belief that looking scientific means having numbers instead of words.
As if there is scientific evidence that right wing economics is true.

[leftyandproud]

15. laffer..

I think we must admit he was partially right...There is a "sweet spot" where the maximum amount of revenue will be brought in, but people can disagree on it. If we were to triple taxes on everyone in the country tomorrow morning, tax revenue would not triple...It would most likely drop off a cliff, bringing in fewer receipts to the federal govt. than if we just had a 5%-10% tax on people. People would work their ass off with a 5% tax burden...but once you knock it up to 70%, 80%, 95%, work is definately discouraged for those paying it. Leisure time is much more preferable than working your ass off for .20 of every dollar you make.

[snippy]

18. The "sweet spot" is more a result of increased tax evasion and

avoidance than a rejection of income. I always ask supply-siders to provide me with a list of names of people who had considered founding the "next Microsoft" but decided not to because of the high income tax rates. Or a list of names of people who were going to work overtime or a second job so that they could save for a down payment on a house, or a new car or their child's college tuition but decided not to because of the tax rate.

I also ask if high income tax rates are the reason the US has never been an economic power.

High taxes do not decrease work although they do decrease consumption. They do increase black markets, barter transactions, and tax fraud, evasion and avoidance.

[Mechatanketra]

17. Disincentivizing isn't always bad.

Theoretically, the Laffer curve may be correct, and I (for instance) might decide that the increase in taxes at my 6-digit job is too high to justify the extra work I'd have to do to earn 7 digits.

Good.

Because I don't need that money. Because if I'm 'discouraged' from doing that extra work, someone else will have a chance to do it instead, someone who's currently making NO digits. This is good for the economy.

If I'm willing to spend $100K to get work done, than 2 $50K jobs are better for the economy than 1 $100K job and one unemployed person.

[edward]

5. "Voodoo economics"

Who said that? Reagan's vice-president.

[jab105]

6. Brought to you by the WSJ editorial board...

The supply siders never increased jobs in the US...the whole idea is flawed!!

any prosperity of the time was created by Volcker getting us out of stagflation by sending the economy into a depression, and then once inflation was under control the interest rates were reduced, and money supply increased, which is what spurred on the economy...it was all Keysenian!!

AND, the economy went back to pre-recession rates, not higher, which is what the supply siders would have you believe...those reckless Reagan tax cuts did nothing to increase jobs!!

However, right now we are in a liquidity trap...that is a huge problem cause Bush wont get the lucky timing break that Reagan did....

[0rganism]

7. Even David Stockman disowned Reagan's implementation

Whether or not the theory itself was sound, it had three fundamental premises:
* tax cuts across the board
* restricted government spending
* coupling currency to a material standard

What happened was:
* tax cuts especially for the rich
* increased government spending
* continued monetaristic control of the cash supply

Reagan was able to reap incredible bennies from this in the short term, because his wealthy benefactors practically assured him good press. (It is in this era also that consolidation of media ownership begins in earnest.) Defecit spending on ridiculous military budgets, floating every pie-in-the-sky deal imaginable, fueled growth of an enormous national debt.

Now, instead of national prosperity, we're faced with a generation of abject poverty. Rather than shore up the tax base with a firm progressive foundation, and finance social security in perpetuity, the regime is paying off its rich contributors while encouraging them to invest in overseas labor markets.

Republicans have ruined the American economy, perhaps permanently.

[snippy]

16. Stockman's view of supply side.

Yes, Stockman conceded, when one stripped away the new rhetoric emphasizing across-the-board cuts, the supply-side theory was really new clothes for the unpopular doctrine of the old Republican orthodoxy. "It's kind of hard to sell 'trickle down,'" he explained, "so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."

http://www.theatlantic.com/politics/budget/stockman.htm

[MaverickX]

8. Even supply-side Bush talks like a Keynesian...

He sold his taxcut package by saying it'll put money into consumers' pockets and they'd spend it. He even knows supply-side was rejected by the country.

[LoZoccolo]

10. Economics is cool...

...would any of you reccomend some good books regarding the failures of supply-side economics? I just started getting into studying it a few months ago, but it's basically an argument you can easily win against the right and shed a lot of doubt in their minds regarding right-wing propaganda.

Of course now the talking point (bullshit, duckspeak, whatever else you'd like to call it) is "economies are cyclical". Something all the dittoheads can repeat, and they don't have to know a thing about economies or what would make them cycle.

[0rganism]

14. I recommend the econ bibliography from the Liberalism Resurgent site

Read this article: http://www.korpios.org/resurgent/23More.htm

These are cited as reference:
* James Carville, We're Right, They're Wrong: A Handbook for Spirited Progressives (New York: Random House, 1996)
* Paul Krugman, Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (New York: W.W. Norton & Company, 1994)
* Hedrick Smith, The Power Game: How Washington Works (New York: Ballantine, 1988)
* David Stockman, The Triumph of Politics: Why the Reagan Revolution Failed (New York: Harper & Row, 1986)
* William Greider, "The Education of David Stockman," The Atlantic Monthly, December 1981, pp. 46-47.

(It's worth bookmarking the Liberalism Resurgent site, if you haven't already. Lots of good jumping off points for further research there.)

[MrPrax]

19. Um...bit of a correction folks

Supply side is actually monetarism

School of economic thought advocating government policies that allow market forces to operate freely, such as privatization, cuts in public spending and income tax, reductions in trade-union power, and cuts in the ratio of unemployment benefits to wages. Supply-side economics developed as part of the monetarist (see monetarism) critique of Keynesian economics.
http://www.tiscali.co.uk/reference/encyclopaedia/hutchinson/m0031917.html



I am aware that Americans have a penchant to invent everything, but this particularly disgusting theory found political favour with Margaret Thatcher in the UK well before Reagan and Stockwell.
Unfortunately the main architect of supply side economics in the US was Paul Volker under the Carter Administration--Reagan can't take the whole blame.
If anything the tag was reagan was practising military keynesianism rather than the pure supply side monetarism advocated by such guys as Milton Friedman and the Chicago School and demonstrated in places like Chile and Brazil.

For a good critique of monetarism
Nicholas Kaldor's The Scourge of Monetarism pretty well buries the theory