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Monday, September 03, 2007

How the Supply-Side Cult Hijacked American Politics

Jonathan Chait looks at the Laffer curve cult (there's quite a bit more in the article):

How a cult hijacked American politics: Flight of the Wingnuts, by Jonathan Chait, TNR: American politics has been hijacked by a tiny coterie of right-wing economic extremists, some of them ideological zealots, others merely greedy, a few of them possibly insane. ... Notions that would have been laughed at a generation ago ... are now so pervasive, they barely attract any notice. ...

It was not always this way. A generation ago, Republican economics was relentlessly sober. ... Over the last three decades, however, such Republicans have passed almost completely from the scene, at least in Washington, to be replaced by, essentially, a cult. ...

The cult in question generally traces its political origins to a meeting in Washington in late 1974 between Arthur Laffer, an economist; Jude Wanniski, an editorial page writer for The Wall Street Journal; and Dick Cheney, then deputy assistant to President Ford. ... Wanniski and Laffer believed it was possible to simultaneously expand the economy and tamp down inflation by cutting taxes, especially the high tax rates faced by upper-income earners. ...

Wanniski and Laffer were laboring with little success to explain the new theory to Cheney. Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it..., the Laffer Curve... Cheney apparently found the Laffer Curve a revelation, for it presented in a simple, easily digestible form the messianic power of tax cuts.

The significance of the evening was not the conversion of Cheney but the creation of a powerful symbol that could spread the word of supply-side economics..., ... the Curve explained it all. ...

With astonishing speed, the message of the Laffer Curve spread through the ranks of conservatives and Republicans. Wanniski evangelized tirelessly ..., both on the Journal's editorial pages and in person. ...

Today, ... the core beliefs of the supply-siders are not even subject to question among Republicans. Every major conservative opinion outlet promotes supply-side economics..., deviation from the supply-side creed has become unthinkable for any Republican with national aspirations. ...

Like most crank doctrines, supply- side economics has at its core a central insight that does have a ring of plausibility. The government can't simply raise tax rates as high as it wants without some adverse consequences. ... And there are justifiable conservative arguments to be made on behalf of reducing tax rates.. But what sets the supply-siders apart from sensible economists is their sheer monomania. ... They believe that economic history is a function of tax rates...

It doesn't take a great deal of expertise to see how implausible this sort of analysis is. ... All this is to say that the supply-siders have taken the germ of a decent point--that marginal tax rates matter--and stretched it, beyond all plausibility, into a monocausal explanation of the world.

Aside from popular articles in places like the Journal's editorial page, two classic tomes defined the tenets of supply-side economics: Wanniski's The Way the World Works and George Gilder's 1981 manifesto, Wealth and Poverty. Both have had enormous influence...

Here is what makes the rise of supply-side ideology even more baffling. One might expect that a radical ideology that successfully passed itself off as a sophisticated new doctrine would at least have the benefit of smooth, reassuring, intellectual front men... Yet, if you look at its two most eminent authors, good sense is not the impression you get. Let me put this delicately. No, on second thought, let me put it straightforwardly: They are deranged. ... [...continue reading...]

    Posted by on Monday, September 3, 2007 at 12:15 AM in Budget Deficit, Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (97)

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