The Resurrection of Voodoo Economics

M.W. Guzy is a retired police detective who teaches criminology at the
University of Missouri, St. Louis.
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The recent Republican triumph at the polls has left the GOP in control
of both Congress and the White House. Though alarming to liberals,
this development could actually boomerang in their favor: It finally
allows for an empirical test of so-called "supply-side" economics.

The supply-side theory is essentially a reformulation of the venerable
fiction that wealth at the top of the economic pyramid "trickles down"
to those below. By this reasoning, Brazil -- where an elite few own
virtually all of the wealth -- should be the most prosperous nation on
earth.

The concept's modern incarnation first entered the political arena
during the 1980 primaries when Ronald Reagan advanced the
counterintuitive notion that cutting tax rates would increase tax
revenue. At the time, critics howled. Chief among these was his rival
for the Republican nomination, George H. Bush, who labeled the
proposal "voodoo economics."

Talk of witchcraft soon vanished, however, when George [Bush] I --
ever the team player -- joined the Reagan ticket as its
vice-presidential nominee. The theorem that reduced taxes would
stimulate economic growth and thus enhance revenues subsequently
became a right-wing staple.

When Reagan actually implemented his plan, of course, nothing of the
sort transpired. In conjunction with a massive defense build-up, his
tax cuts plunged the budget into record deficits that would persist
until two tax increases, a "peace dividend" and the unparalleled
economic expansion of the '90s finally combined to stem the flow of
red ink.

Undeterred by disastrous outcomes, supply-siders blamed the profligate
Democrats who controlled Congress for the mess. It seems that their
appetite for domestic pork had undermined the experiment. The debate
thus remained a theoretical stalemate until the '02 elections gave W.
Bush the mandate he'd sought.

The ideological scion of Reagan rather than of his patrician and
relatively moderate father, the younger Bush would never renege on a
"read my lips" pledge simply to accommodate fiscal reality. Relieved
of the strictures imposed by a hostile legislature, he's now free to
test the theory that our economic doldrums are the result of rich
people not having enough money.

Of course, should welfare for the wealthy fail to stimulate middle
class consumer demand, supply-side enthusiasts will fabricate another
explanation for their creed's failure. Like all true believers,
they're amazingly resilient in the face of contradictory empirical
data. After all, they've argued for decades that any increase in the
minimum wage will result in job cuts even though this phenomenon has
never, in fact, occurred.

In theory, wage hikes should cost jobs because they inflate the cost
of labor. In reality, this doesn't happen because employers hire
workers to satisfy demand for their products, not because labor's
cheap. Layoffs take place when demand ebbs.

Understanding that simple fact suggests that the surest way to
stimulate economic growth is to give consumers more money to spend --
demand-side economics, if you will. Unfortunately, that humble notion
fails to justify huge windfalls for the country club set and will thus
attract few proponents in the current political climate.

Boxing is sometimes called the "sweet science" because it subjects all
conjecture to the test of the ring. Supply-siders are about to step
back between the ropes -- this time without a fall guy to blame for
their shortcomings. Let the match begin.

This is M.W. Guzy for TomPaine.com.


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Published: Nov 18 2002