Tuesday, October 09, 2007

Captives of the Supply Side

Op-Ed Contributor
The New York Times
October 9, 2007


REMEMBER the Republican presidential debate a few months ago, when three candidates raised their hands to indicate they didn’t believe in evolution? Something just as laughable is likely to happen today, at the first Republican debate on the economy. Every candidate will probably embrace the myth that cutting taxes increases government revenues. At the very least, no one will denounce it as a falsehood.

It’s been said for years that the Republican nominating process is controlled by social conservatives, and that any aspiring nominee must kowtow to their demands. But this year’s Republican primary is making it increasingly clear that a different tiny minority — the economic far right — truly calls the shots.

Last year, Senator John McCain earned widespread ridicule for publicly embracing Jerry Falwell, whom he had once described as “evil.” But an equally breathtaking turnabout occurred earlier in the year, when Mr. McCain embraced the Bush tax cuts he had once denounced as an unaffordable giveaway to the rich. In an interview with National Review, Mr. McCain justified his reversal by saying, “Tax cuts, starting with Kennedy, as we all know, increase revenues.” It was the political equivalent of Galileo conceding that the Sun does indeed revolve around the Earth.

Mr. McCain is not alone. Every major Republican contender — Rudy Giuliani, Fred Thompson, Mitt Romney — has said that the Bush tax cuts have caused government revenues to rise. No prominent Republican office-seeker dare challenge this dogma for fear of offending the economic far right.

Yet there is no more debate about this question among economists than there is debate about the existence of evolution among biologists. Most economists believe that it is theoretically possible for tax rates to be high enough that a reduction in rates could actually produce more revenues. But I do not know of any tenured economist in the United States who believes this is true of the Bush tax cuts.

Granted, economic growth sometimes causes revenues to rise faster than expected after a tax cut, as has happened since the 2003 tax cut. But sometimes revenues fall faster than expected after a tax cut, as they did after the 2001 tax cut. And sometimes revenues rise faster than expected after a tax increase, as they did after the 1993 Clinton tax increase.

Even very conservative economists who have worked for the Bush administration — including Greg Mankiw, a former chairman of the Council of Economic Advisers under President Bush who is now an adviser to Mr. Romney — have publicly stated that today’s tax revenues would be even higher were it not for the Bush tax cuts.

No Republican candidate can risk committing heresy by acknowledging this bipartisan consensus among economists. On social issues, however, Republicans actually tolerate diversity of thought. For example, Mr. McCain, Mr. Giuliani and Mr. Thompson all oppose, on federalist grounds, a constitutional amendment to ban gay marriage.

The Republican Party is organized around a strategy of building political capital on social issues while spending political capital on economic issues. Republicans will advance the social conservative agenda, but they will rarely risk their popularity to do so.

As Trent Lott, the former Senate majority leader, recently observed: “Republicans tend to squabble, but when it’s fiscal issues, when it’s economic issues, we tend to come together. That’s what makes us Republicans.” Mr. Lott is right if he’s referring to the members of the Washington establishment who run the Republican Party. But when it comes to the party’s rank-and-file members, he has it exactly backward. Grassroots Republicans agree on social issues but disagree on economics.

The most recent Pew survey of the electorate, which came out two years ago, revealed that Republicans find common ground on social issues like discouraging homosexuality and teaching creationism alongside evolution in the public schools. They disagree on economic policy. In the survey, most members of the Republican coalition preferred deficit reduction to tax cuts.

Ardent anti-tax conservatives represent a clear minority among Republican voters. And yet the most extreme and counterfactual subgroup among them — supply-siders — remain firmly in control of the party.

The party’s economic priorities are reinforced at Grover Norquist’s weekly “Wednesday Group” meetings, where conservative activists, politicians, business lobbyists and pundits meet to hash out a common agenda. Mr. Norquist is known to cut off any mention of issues like abortion or homosexuality with a curt “No sex talk, please.”

A handful of fanatical ideologues, along with a somewhat larger number of money men who stand to gain a fortune from supply-side policies, relentlessly enforce the faith. They do so with far more success than the religious right, and they receive far less mockery for their efforts.

Just last month President Bush insisted, yet again, that “supply-side economics yields additional tax revenues.” Hardly an eyebrow was raised.

Jonathan Chait, a senior editor at The New Republic, is the author of “The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics.”


Anonymous Anonymous said...

As a middle class person who has seen my spendable income DECREASE over the last three years despite a 15,000 pay increase in that time -- due to hugely inflated gas, heating oil, electricity bills and the increased price of food due to crude oil increases -- on top of which there has also been a downturn in the real estate market BIG TIME, I have a hard time seeing how the economy has improved over the course of this administration. And yeah, the tax cuts have been nice, but I mainly use them for guess what? TO PAY MY PHENOMENAL OIL BILL!!!!

6:24 AM  
Blogger Palermo's Blog said...

Straight talk. It's refreshing. I crunched some numbers on this topic just yesterday. If you are interested (I know you moderate this) you can view my commentary at http://polecolaw.blogspot.com/.

1:59 PM  
Blogger Palermo's Blog said...

Sorry, I don't know if my comment was delivered. I'm new at this.

Straight talk - thank you. I did a little bit of number crunching on this in response to a WSJ article today. I posted that, as well as a previous comment on this topic, on my fledgling blog. If you are interested (I know you are moderating comments) you an read my posts here http://polecolaw.blogspot.com/

2:02 PM  
Blogger Palermo's Blog said...

What about the debt? Every time I hear this argument, including today from Guiliani in the debate, I never hear anything about the debt that accompanies these supply-side experiments. Happened in the 1980s and then we hit the wall. Its happening again but it seems nobody connects the two (at least not the Republicans). So much for fiscal conservatism.

2:33 PM  
Blogger Palermo's Blog said...

Thanks for your comments and help. I looked at Newsvine and I like it. I will try to dedicate some time over the weekend to getting up to speed. Fell behind this week because there was so much to comment on, and this is something I do in between teaching full time at Stony Brook University's College of Business and all the rest of the usual stuff.

Thanks again,
Mark Palermo

9:42 PM  

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