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Aug. 16, 2005 Recent history has proven the republican party to be a bastion of bad ideas. One such idea that is easily demonstrated as a failure is supply side economics. Many conservatives support supply side economics without really understanding what it is, and conservative economics is not necessarily synonymous with supply side economics. Here is the definition of supply side economics: The school of economic thought which emphasizes the importance of only tax cuts and business incentives in encouraging economic growth in the belief that businesses and individuals will use their tax savings to create new businesses and expand old businesses, which in turn will increase productivity, employment, and general well being; and lowering taxes will increase supply thus lowering inflation, while increasing economic growth, savings, investment, and tax revenue. Statistics prove that supply side economics failed in every category. Logically, the concept of supply side economics can be rejected out of hand by looking at the history of the economy. The periods of fastest economic growth in this country occurred during both World Wars and the late 1930's, both times of the highest tax increases. But this wasn't enough to stop supply siders from originally formulating their theory. Let's look at the history of the theory. Supply side economics was conceived by one crank economist, Arthur Laffer, and an editorial writer for The Wall Street Journal, and a few staffers who worked for congressman, Jack Kemp. A crank economist (or theorist in any field) is one who can not get published in a peer-reviewed economics journal. That's why Arthur Laffer is considered a crank economist. Ronald Reagan embraced this crank theory and pushed through supply side tax cuts in 1981 even though this theory is rejected by over 99% of economists in academia. Out of 18,000 economists only 12 consider themselves to be supply side economists. (Source: American Economics Association). Economists in academia are split between the liberal Keynesians and the conservative monetarists. Supply siders differ from conservative monetarists in believing that fiscal discipline and the federal reserve's policy on money supply have no effect on the economy compared to tax cuts. Supply siders believe tax cuts are a cure all for everything, and the bigger the tax cut the bigger economic growth will be. Now, let's look at how supply side economics failed. The vast majority of economists agree inflation fell during the 1980's because of Paul Volcker's policies at the federal reserve and not because of tax cuts. Tax revenue declined drastically when tax cuts went into effect. Tax collections in billions (1987 dollars) 1981 $766.6 1982 $ 738.2 1983 $684.3 1984 $730.4 (Source: U.S. Office of Management and Budget historical tables) Tax cuts failed to accelerate economic growth in the GDP 1970's 18% 1980's 18% (Source: U.S. commerce department) Tax cuts failed to increase potential economic growth. Potential economic growth is economic growth factored in with a constant unemployment rate in order to eliminate fluctuations in the natural business cycle that would skew the results. 1970's 2.5% per year 1980's 2.5% per year (Source: Paul Krugman, Peddling Prosperity) Tax cuts failed to increase disposable savings. 1980 7.9% of GDP 1990 4.2% of GDP (Source: U.S. Bureau of Economic Analysis) Tax cuts failed to increase private investment. 1970's 18.6% of GDP 1980's 17.4% of GDP (Source: Paul Krugman, Peddling Prosperity) Tax cuts failed to lower the poverty rate. 1980 18.3% of children under 18 10.1% of people ages 18-64 1990 20.6% of children under 18 10.7% of people ages 18-64 (Source: U.S. census) Tax cuts did increase income inequality. Income of the poorest 20% fell by 10% Income of the richest 1% rose by 105% (Source: Paul Krugman: Peddling Prosperity) Even some of the people who implemented supply side economics have admitted it's failure. David Stockman, Ronald Reagan's budget director, said this in his book, Triumph of Politics: Why the Reagan Revolution Failed. Supply side economics is the "Trojan horse for upper bracket tax cuts without economic justification." The 1992 Economic Report to the President is a final indictment of supply side economics. Here is a quote from the document. "the era of disappointing economic growth continued through years of conservative rule." ------------ About the author Mark Gelbart: My book, Talk Radio, is a black comedy about a radio talk show host who gets kidnapped and psychologically tortured by a loser. www.mark-gelbart.com Email: agelbart@aol.com Tell a friend about this site! ------------ All articles are EXCLUSIVE to Useless-Knowledge.com and are not allowed to be posted on other websites. ARTICLE THIEVES WILL BE PROSECUTED! |
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