Reaganomics

 

Won’t Get Fooled Again

Pick up my guitar and play
Just like yesterday
Then I'll get on my knees and pray
We don't get fooled again.

Fool me once shame on you. Fool me twice shame on me.

Arthur Laffer and Stephen Moore had the nerve to publish an op-ed piece in the Wall Street Journal on August 13, 2021 with the subtitle “Forty years after the 1981 tax cuts, America needs to relearn the lessons of the supply-side revolution.” Really? Really?  I hope that we don't have to relearn anything, that we have wised up, learned our lessons well, and will never forget. 

In 1981 America embarked on an economic experiment by changing its tax code to lower taxes, especially for upper incomes, and cut government spending on common resources.  It was sold as a supply side stimulus, which was an alternative to a Keynesian demand side stimulus. We were told that those increases to the investment class would trickle down to benefit all through increased growth.

After 40 years, the growth has been much lower than the period before those tax cuts.  Very little has trickled down.  In fact the US has been one of only two countries, the other being the United Kingdom, where difference between mean and median income increased since the 1980s.  The United Kingdom wised up and stopped the destructive practices of Margaret Thatcher and has at least reached stability, but the US experiment has continued to this day. 

Government spending increases common resources and regulates those common resources so that we won’t have a Tragedy of the Commons. Stimulating labor may increase production.  What was sold as supply side stimulus was really only an investment stimulus.  What is particularly ironic is that the reason to adopt these draconian measures was “stagflation” that in retrospect was most probably caused by the Nixon Shock of 1971.  So Republican Ronald Reagan  “saved” the US  from the problem caused by Republican Richard Nixon.  Talk about killing your parents and appealing for mercy because you are now an orphan.  It took Sam Brownback only five years to ruin the economy of Kansas with "supply side" economics, so there is some small advantage that voodoo economics was not totally embraced and it could have been worse.  But we won’t get fooled again.