||Supply-Side Virus Strikes
Why there is no cure for this virulent infection.
By Paul Krugman
posted Thursday, Aug. 15; to be composted Thursday, Aug. 22)
By now there have
been hundreds of articles explaining why Bob Dole's economic plan, which
relies on the magic of supply-side tax cuts, won't work. And there have
been hundreds more explaining why Dole, whose contempt for people who believe
in that kind of magic is a matter of public record, nonetheless chose to
accept their program--and chose one of the most prominent believers as
his running mate. I have nothing to add to all of that. But it seems to
me that the success of the tax cutters in taking over yet another presidential
campaign requires a deeper explanation. Why does supply-side economics
have such durability?
It should go
without saying that the supply-side idea--which is that tax cuts have such
a positive effect on the economy that one need not worry about paying for
them with spending cuts--does not persist because of any actual evidence
in its favor. If you want, any nonpartisan economist can explain to you
at length what really happened during the Reagan years, and why you can't
seriously claim his record as an advertisement for supply-side policies.
But surely it is enough to look at the extraordinary recent record of the
supply-siders as economic forecasters. In 1993, after the Clinton administration
had pushed through an increase in taxes on upper-income families, the very
same people who have persuaded Dole to run on a tax-cut platform were very
sure about what would happen. Newt Gingrich confidently predicted a severe
recession. Articles in Forbes magazine urged readers to get out
of the stock market to avoid the inevitable crash. The Wall Street
Journal editorial page had no doubts that the tax increase would
sharply increase the deficit instead of reducing it. Well here we are,
three years later: The economy has created 10 million new jobs, the market
is up by 1500 points, and the deficit has been cut in half. I'm not saying
that Clinton's policies led to that result--they account for only part
of the good news about the deficit, and hardly any of the rest. But the
point is that the supply-siders were absolutely sure that his policies
would produce disaster--and indeed, if their doctrine had any truth to
it, they would have.
I would argue, do supply-side views spread because they are good politics.
True, Ronald Reagan won on a supply-side platform--but one suspects he
would have won on almost any platform, and that the taunts of "voodoo
economics" actually cost him some votes. Today, the supply-side label
is a clear liability. Even promoters of the concept shy away from the label.
In 1994, Republican leaders like Gingrich and Dick Armey chose to conceal
the extent of their tax-cutting fervor from the voters, who they judged
would not trust an economic program based on supply-side assumptions. And
the word is that even Republican focus groups--the same groups that were
used to craft the Contract With America--have reacted scornfully
to the idea of an election-year tax-cut promise. This is partly, of course,
because they doubt it will really happen. But it is also because they doubt
it would have the promised beneficial effect.
So why does the supply-side idea keep
on resurfacing? Probably because of two key attributes that it shares with
certain other doctrines, like belief in the gold standard: It appeals to
the prejudices of extremely rich men, and it offers self-esteem to the
support of rich men is not a small matter. Despite its centrality to political
debate, economic research is a very low-budget affair. The entire annual
economics budget at the National Science foundation is less than $20 million.
What this means is that even a handful of wealthy cranks can support an
impressive-looking array of think tanks, research institutes, foundations,
and so on devoted to promoting an economic doctrine they like. (The role
of a few key funders, like the Coors and Olin Foundations, in building
an intellectual facade for late 20th-century conservatism is
a story that somebody needs to write.) The economists these institutions
can attract are not exactly the best and the brightest. Supply-side troubadour
Jude Wanniski has lately been reduced to employing followers of Lyndon
LaRouche. But who needs brilliant, or even competent, researchers when
you already know all the answers?
The appeal to the intellectually insecure
is also more important than it might seem. Because economics touches so
much of life, everyone wants to have an opinion. Yet the kind of economics
covered in the textbooks is a technical subject that many people find hard
to follow. How reassuring, then, to be told that it is all irrelevant--that
all you really need to know are a few simple ideas! Quite a few supply-siders
have created for themselves a wonderful alternative intellectual history
in which John Maynard Keynes was a fraud, Paul Samuelson and even Milton
Friedman are fools, and the true line of deep economic thought runs from
Adam Smith through obscure turn-of-the-century Austrians straight to them.
so it doesn't really matter whether supply-side economics makes any sense,
or even whether it goes down to a crushing electoral defeat. The supply-siders
will always have a safe haven in the world of Free Enterprise Institutes
and Centers for the Study of Capitalism, outlets for their views in the
pages of Forbes and the Wall Street Journal,
and new recruits who never tire of saying the same things again and again.
When I was younger I thought that ridicule could eventually bring the whole
farce to an end, but now I know better. Presumably the pundits are right,
and Dole's desperate ploy will fail. But while that will be the end of
him, the supply-siders will be back.
Biologist Richard Dawkins has argued
famously that ideas spread from mind to mind much as viruses spread from
host to host. It's an exhilaratingly cynical view, because it suggests
that to succeed, an idea need not be true or even useful, as long as it
has what it takes to propagate itself. (A religious faith that disposes
its believers to become martyrs may be quite false, and lethal to its adherents,
yet persist if each martyr inspires others.) Supply-side economics, then,
is like one of those African viruses that, however often it may be eradicated
from the settled areas, is always out there in the bush, waiting for new
victims. I had expected Bob Dole, with his worldliness and sharp wit, to
have stronger immunity than most. But weakness in the polls made him vulnerable,
and he will never recover.