Supply-Side Revolution: An Insider's Account of Policymaking in Washington PDF
Preview Supply-Side Revolution: An Insider's Account of Policymaking in Washington
The Supply-Side Revolution The Supply-Side Revolution An Insider's Account of Policymaking in Washington PAUL CRAIG ROBERTS Harvard University Press Cambridge, Massachusetts London, England For my wife, Linda Jane Roberts Copyright © 1984 by the President and Fellows of Harvard College All rights reserved Printed in the United States of America 10 9 8 7 6 5 4 3 Library of Congress Cataloging in Publication Data Roberts, Paul Craig, 1939- The supply-side revolution. 1. United States—Economic policy—1981- 2. Supply-side economics. I. Title. HC106.8.R6 1984 338.973 83-18340 ISBN 0-674-85620-1 (cloth) ISBN 0-674-85621-X (paper) Acknowledgments AN AUTHOR HAS MANY DEBTS. MY GREATEST IS TO LINDA, MY wife, who shared eight years of our life with supply-side economics. She listened to my complaints, advised me, encouraged this book, edited the manuscript, improved the clarity of my prose, prepared the index, and sustained the decision to write a forthright account. Peter Barlerin, my assistant, helped in many ways to put this book together, from research reports on the media's treatment of Rea- gonomics, which became an integral part of the story, to checking and double-checking quotes, dates, facts and figures. Aida Donald and Joyce Backman of Harvard University Press supplied a final ed- itorial polish. I would like to acknowledge some of the unsung heros of supply- side economics who from their positions on the congressional staff helped to create a new economic policy: Bruce Bartlett, Steve Entin, John Mueller, Jan Olson, Mark Policinski, Joe Rogers, and Bruce Thompson. This list is not exhaustive, but these seven carried heavy burdens. Later my deputy and successor as assistant secretary of the Treasury, Manuel Johnson was equally indispensable, as were the professional staff and secretaries of the Treasury's Office of Eco- nomic Policy, who gave unstintingly of their time and expert abili- ties in support of the new policy. Contents Introduction 1 1 Birth of a New Policy 7 2 Econometrics, Politics, and Public Policy 34 3 The Spreading Revolution 69 4 Reagan's First Months 89 5 Preludes to Victory 125 6 Victory and Defeat 161 7 The Unraveling of Reaganomics 226 8 Assessing Reagan 246 9 Principle versus Pragmatism in Economic Policy 259 10 Restoration and Resistance 296 Glossary 313 Index 315 Introduction THIS IS THE STORY OF A REVOLUTION IN ECONOMIC POLICY from its origin in Congressman Jack Kemp's office in the summer of 1975 through the first thirty months of the Reagan Administration. Jack Kemp was the first supply-side politician, and Ronald Reagan was the first supply-side President. It was a revolution brought about by the unstinting efforts of a few people. By the middle of the 1970s it was apparent that the United States economy under the pol- icies of the time could no longer grow without inflation. Concerns arose whether it would be possible to maintain the level of social se- curity benefits, provide for an adequate national defense, meet other social goals, and create enough new jobs to maintain full employ- ment. A debate began over capital formation, but it did not lead to any new policies until supply-side economics provided a new per- spective. By the end of 1978, supply-side economics had won its spurs in the budget policy debates and captured the imagination of the Con- gress. With presidential leadership from Reagan, the result was en- actment in 1981 of what was called "the largest tax cut in history." A year later the same administration presided over the "largest tax in- crease in history." Nine months after that, President Reagan re- emerged as a supply-side leader. The story of these events includes the role played by personalities in the policy process and the factors that inhibit successful leadership. Once the public policy process is understood, people will expect less from it. For an author a simple approach to material is appealing, and there were two obvious choices: organize the material around the 2 INTRODUCTION competing economic theories and let the story unfold as a contest between them for dominance over policymaking in Washington, or organize the material around the problems in the economy and tell the story in terms of how those problems produced a need for a new economic theory and policy. Both approaches had advantages. The first would allow the contending theories to be explained systemati- cally before the story began, thus providing a primer for the non- economist as well as establishing a framework in terms of the competition of ideas. The second would allow the story to be told in terms of the needs of the economy, which not only provides a conve- nient organization but also grants inevitability to the new supply- side policy. Either approach offers an author convenience. But the price would be a misleading account, although of a sort with which the modern consciousness is comfortable. We are used to portraying change as the outcome of people swept up in a battle of ideas, or as the result of historical forces and economic needs producing their inevitabilities while people simply watch, prevented by class con- sciousness or vested interest from altering their destiny. Such por- trayals overlook that individuals are a causative force in history—they create and they destroy. The story in this book is one of the interplay of individual personalities, ideas, the economy, po- litical opportunities, and economic policy. As a result, the political narrative and the economic theory are intertwined. Supply-side economics did not appear full-fledged in Washington to meet the needs of the time, and there was nothing inevitable about it. Supply-side economics developed largely as a creative re- sponse to opportunities. Had a relatively few people not decided to challenge the economic policy establishment, supply-side economics might not have happened, and the Republicans would not have had a message of hope with which to gain another chance at governing.1 1. After supply-side economics became a public policy issue, economists began writing genealogies of supply-side thought (see Robert E. Keleher and William P. Or- zechowski, "Supply-Side Fiscal Policy: An Historical Analysis of a Rejuvenated Idea," in Richard H. Fink, ed. Supply-Side Economics: A Critical Appraisal, University Publications of America, 1982). However, prior to its ascendancy in Washington, sup- ply-side economics was not a topic of study in economics courses. Although the sup- ply-side approach to tax policy and economic growth is well grounded in classical economics, the supply-side revolution was not the product of a classical revival.
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