Bartlett reprinted a National Review review by Kevin A. Hassett:
It is indeed ironic that this book should arrive at almost precisely the same moment as former Reagan administration economist Bruce Bartlett’s new book, The New American Economy. Bartlett is the author of a bestselling book about George W. Bush with the inflammatory title Impostor, a book he claims cost him his job at a conservative think tank. There is perhaps no man so praiseworthy in “elite” circles as the prodigal conservative who has “seen the light.” Bartlett has been practically blinded by it, and has, accordingly, become a media darling.In his new book, Bartlett argues that “just as Keynesian economics went off on the wrong track and became discredited, I think supply-side economics has also reached the end of its useful life.” Bartlett goes on to make a depressingly convincing argument that, in the U.S. at least, this is the case.The problem is that the supply-side formula requires lower taxes and smaller government. You cannot, Bartlett correctly argues, have one without the other. In the U.S., government spending has advanced steadily under both Democratic and Republican administrations. The difference between Republicans and Democrats appears to be that Republicans, who oppose higher taxes in almost every form, pursue policies that end up being unsustainable.As bad as it is today, when one looks ahead to an America that shortly will have the same age distribution that Florida has now, one can only conclude that it is going to get much worse. The health bills of our senior citizens alone may well exceed the current size of government in a few decades. Bartlett starts a difficult conversation. If we cannot constrain the growth of government, are we going to try to run a Ponzi scheme, or are we going to pay for it? If we choose the latter, how are we going to raise the money? Bartlett’s answers are well researched, drawing on a massive literature.An intransigent conservative will be disappointed that Bartlett does not address the facts that are most at odds with his assertion that supply-side economics is dead. Even as Samuelson’s equally political nephew, Larry Summers, and the rest of President Obama’s team appear to be engineering the final triumph of academic quasi-socialism, many countries around the world, from Sweden to China, have embraced supply-side views and seen positive results. Low tax rates have achieved a cachet in Europe that Laffer never would have dreamed of. So why is supply-side economics dead for the U.S.?In correspondence with me, Bartlett has argued that our form of democracy is incapable of reducing spending efficiently because the ruling party in America has much less power than the ruling party in a parliamentary democracy. We are, he concludes, going to spend more, and we might as well face it and raise taxes to pay for it. He may be right, but the battle is certainly not over.After reading both books, a conservative cannot help but be troubled by the parallels between the lives of Bartlett and Laffer. Laffer spoke truths that were unpopular with liberals, and they sent out Hercules to slay him. Bartlett challenged sacred tenets of Laffer’s teachings, and similarly was ridiculed and cast out.
Kevin Hassett‘s review of Bruce Bartlett‘s new book critiquing the relevance of supply-side economics is an extraordinary document. The review appears in the National Review, and Hassett is a well-known conservative economist. Somewhat predictably, his review starts out straining to attack Bartlett. After quickly recapping Bartlett’s journey as a harsh conservative critic of George W. Bush, Hassett puts him swiftly in place. “There is perhaps no man so praiseworthy in ‘elite’ circles as the prodigal conservative who has ‘seen the light,’ ” writes Hassett, leaning heavily on scare quotes. “Bartlett has been practically blinded by it, and has, accordingly, become a media darling.” Oh, snap!
But Hassett’s effort at a takedown crashes quickly on the shoals of Bartlett’s actual argument, which Hassett finds himself unable to reject quite so flippantly:
The problem is that the supply-side formula requires lower taxes and smaller government. You cannot, Bartlett correctly argues, have one without the other. In the U.S., government spending has advanced steadily under both Democratic and Republican administrations. The difference between Republicans and Democrats appears to be that Republicans, who oppose higher taxes in almost every form, pursue policies that end up being unsustainable.
As bad as it is today, when one looks ahead to an America that shortly will have the same age distribution that Florida has now, one can only conclude that it is going to get much worse. The health bills of our senior citizens alone may well exceed the current size of government in a few decades. Bartlett starts a difficult conversation. If we cannot constrain the growth of government, are we going to try to run a Ponzi scheme, or are we going to pay for it? If we choose the latter, how are we going to raise the money? Bartlett’s answers are well researched, drawing on a massive literature.
On this, Hassett and I agree. And I’ll take the opportunity to say Democrats have been little better than Republicans. President Obama‘s most damaging campaign promise was his inane pledge to preserve tax rates on people making under $250,000 a year. His attacks on John McCain‘s effort to tax health-care benefits limited his options when he became president and realized that that was exactly what needed to be done, leaving Democrats proposing a roundabout excise tax on expensive insurance plans, which is, at base, a less progressive policy. (Taxing health benefits allows the tax to vary with the worker’s income, while the excise tax is a flat rate.)
James K. Galbraith at Firedoglake, where there’s a salon on this book:
Bruce is a first-hand witness, and quite a good one – though not disinterested. In particular he makes a persuasive case (to me) that the leading supply-siders were not charlatans. They were, rather, for the most part idealists, who took their cues from what was then reputable thought in mainstream economics. (This, of course, raises a question as to whether the mainstream economists were charlatans, but let’s leave that one alone here.)
Still, there was an interesting practical convergence between supply-side and Keynesian perspectives. In public the supply-siders reviled the “discredited Keynesians,” and insisted that their tax cuts were all about “incentives to work save and invest.” But in private even Reagan’s own top economic adviser, Murray Weidenbaum, admitted in 1981 that the tax cuts would provide a powerful economic stimulus, Keynes-style, once the recession was past and the president was gearing up for re-election.
Given that the (Galbraithian) alternative of public investment and a stronger welfare state was not a political possibility, the choice then was between a tax cut-fueled boom and prolonged stagnation. One can argue — I do argue — that by reconciling Keynes with the interests of the rich, the supply-siders made the country more prosperous than it would otherwise have been. They also kept the Republican Party in business. It is true therefore that Reagan’s tax cuts replicated Kennedy’s success in 1964.
When Bruce turns his eye to the present crisis, he confronts a Republican Party in a near-vegetative state, able at best to blink and mutter “tax cut” in the face of any and all problems. He suggests, sensibly, that the lesson of the debacle of Bush’s Social Security privatization scheme be accepted: the welfare state is here to stay. He argues (again as my father once did) in favor of a Value-Added Tax to provide a stable, admittedly regressive, pro-saving funding source. Thus Bruce Bartlett becomes an advocate of the European-style tax-and-welfare state!
Here, we again part company on the merits. For Bruce, our key economic problem going forward is an insufficiency of saving and the supposed burden of public debt. For me, it’s a lack of investment, and of jobs, brought on by the debacle of private debt and a disastrously deregulated and corrupted financial sector. I’m not a fan of the European solution — among other things it leaves savings idle, unemployment high and education (in particular) underfunded. I like the progressive income tax and even more the estate tax, which spur philanthropy and fuel our vast non-profit sector. I think Social Security is the best part of the American welfare state – and one of the most successful public pension programs in the world.
Back to the trenches, Bruce?
Philip Klein at The American Spectator:
MANY OF BARLETT’S points are valid. The fiscal recklessness of the Bush administration is undeniable, and conservatives will have to come up with better solutions to address the looming entitlement crisis. It’s also true that many conservatives have misconstrued supply-side theory. The “Laffer Curve,” for instance, posits that there’s some optimal tax rate, and if taxes are above that point, they actually stifle economic activity and lead to lower revenue. But when Reagan took office, the top tax rate stood at 70 percent — given that it’s now down to 35 percent, it’s harder to make the argument that additional tax cuts will boost revenue. At some point, cutting taxes decreases revenue, even under supply-side theory.
But Bartlett’s thinking is also schizophrenic, as he vacillates between admiring supply-side theory and relishing his role as a conservative provocateur. He argues for a Keynesian approach to severe economic crises such as the Great Depression and the current economic predicament (he viewed President Obama’s economic stimulus package as necessary). But he is also sympathetic to the supply-side critique that lag times inhibit lawmakers from responding to signals in the economy immediately and delay for years the point at which government spending is actually injected into the economy. He says the sooner the government acts, the better. But in the early stages, how can policy makers determine if a recession is severe enough to warrant a Keynesian response? How do they know that they aren’t mis-applying Keynes the way policy makers did in the decades after World War II, and thus setting us up for the same inflationary problems of the 1970s?
Lane Kenworthy at Wall Street Pit:
The chief economic problem we now face, in Bartlett’s view, is not high marginal tax rates. It is the aging of baby boomers to whom we have made Medicare and Social Security commitments. Absent “massive and politically impossible cuts,” this will cause federal government expenditures to rise from 20% of GDP to around 30% over the coming generation. Supply-side dogma leaves Republicans ill-prepared for this challenge. “When the crunch comes and the need for a major increase in revenue becomes overwhelming,” says Bartlett, “I expect that Republicans will refuse to participate in the process. If Democrats have to raise taxes with no bipartisan support, then they will have no choice but to cater to the demands of their party’s most liberal wing. This will mean higher rates on businesses and entrepreneurs, and soak-the-rich policies that would make Franklin D. Roosevelt blush.”
A better result, according to Bartlett, would be to bring government revenues into line with projected expenditures via a value-added tax (VAT), a type of consumption tax. Heavy use of VATs is a key reason, he says, why “many European countries have tax/GDP ratios far higher than here without suffering particularly ill effects. They may not be growing as fast as they would if taxes and spending were lower, but neither are their standards of living significantly below those of the United States. Even strenuous efforts to show that Europeans are poorer than Americans show that the differences are merely trivial.”
I agree with a good bit of what Bartlett says in the book, and I’m particularly sympathetic to this diagnosis and prescription (see here and here). It’s a long way from Barry Goldwater, Milton Friedman, and Ronald Reagan.
I wish Bartlett had gone further. If modern conservatism is by necessity “big-government” conservatism, what principles should guide it? If conservatives must give up the goal of rolling back the welfare state, if they must acquiesce to government provision of generous cushions and supports, what should they aim for in economic and social policy? David Brooks, Ross Douthat and Reihan Salam, Will Wilkinson, Ron Haskins and Isabell Sawhill, and others have weighed in on this question.