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Sunday, January 20, 2008


With the election coming up, supply-side economics has returned to the policy discussion as conservative candidates play to particular factions in the party's base. In response, here's Paul Krugman on Reaganomics [Update: This documents many of the claims in his latest column]:

A few graphs on the Reagan economic record: ..."In short, the Reagan economy was a story of recession and recovery, but not of any sustained improvement in performance. That didn’t come until the middle Clinton years."

Partly this is an excuse for me to make the point once again that when it comes to stabilization policy, which is used to smooth business cycle fluctuations in the economy, supply-side economics has little to offer to actively respond to problems. Supply-side policies are not looking so good as long-run growth policies either - see the link above to the graphs or some of the discussion in this post - and supply-side policies are even more ineffectual as short-run stabilization tools. Given this, it will be interesting to see the extent to which politicians on the right insist upon including supply-side policies as part of a stimulus package and hold stabilization policy hostage with demands that such policies be included.

Update: Robert Waldmann comments:

Awesome Honesty: Just look at the first figure in Paul Krugman's post on Reaganomics. He claims that Reagan's performance on unemployment was not so good. In the figure he starts in the middle of a pre-Reagan recession and ends just before the economy took off. I'm not sure the figure could have been cropped in a way more favorable to Reagan or less convenient of Krugman.

Now that is honesty.

    Posted by on Sunday, January 20, 2008 at 02:48 PM in Economics, Taxes | Permalink  TrackBack (0)  Comments (25)


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