The impact of supply-side economics
Posted by Mitch Kokai at 06:50 AMSome observers express surprise when they learn that John F. Kennedy and Ronald Reagan adopted similar approaches to fighting a sluggish economy: both pushed for large-scale cuts in marginal tax rates.
The similarity between the Kennedy and Reagan proposals makes more sense once youíve read Brian Domitrovicís book, Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity.
Though it depends a bit too heavily on economics jargon and theory, thus limiting its appeal, Domitrovicís book nonetheless tells an important tale of the way in which supply-side ideas came to produce gains for the American economy.
As the author points out, the results were clear once supply-side policies took effect in Reaganís first term and stayed in place for the better part of a quarter century:
A twenty-five-year run of growth at the rate of postwar prosperity interrupted by one mild contraction: this is surely one of the greatest examples of sustained prosperity in the history of the world since the industrial revolution.
Stabilization was the goal of Keynesianism. Governmental management of the economy would smooth out the cycle of booms and busts. There would have to be trade-offs (the essence of the Phillips curve), such as slow growth in exchange for smoothness and inflation in exchange for unemployment. But there would be no repeat of the Great Depression. And yet, ironically, the greatest stabilization occurred under the auspices of Keynesianismís relentless adversary, supply-side economics. Twenty-five years of noninflationary growth at a fabled rate, with one recession blip, is a result that Keynesias could have aspired to only in their dreams.
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