Thom Hartman on the birth of supply-side-ism

Thom Hartman has a fascinating article on Jude Wanniski, the guy who coined the phrase "supply-side economics" and who sold the nation a bill-of-goods. One could argue that he is single-handedly responsible for our current economic crisis.

Wanniski decided to turn the classical world of economics - which had operated on this simple demand-driven equation for seven thousand years - on its head. In 1974 he invented a new phrase - "supply side economics" - and suggested that the reason economies grew wasn't because people had money and wanted to buy things with it but, instead, because things were available for sale, thus tantalizing people to part with their money. The more things there were, the faster the economy would grow.

At the same time, Arthur Laffer was taking that equation a step further. Not only was supply-side a rational concept, Laffer suggested, but as taxes went down, revenue to the government would go up!

Neither concept made any sense - and time has proven both to be colossal idiocies - but together they offered the Republican Party a way out of the wilderness.

Wow. By turning classical demand-side economics on it's head, Wanniski and Laffer managed to completely invert reality in favor of a plan that would lead the Conservitards out of their exile and into the bright uplands of hypocracy. By linking tax-cuts to increased government revenue and then saying that those tax-cuts needed to go to the top of the income scale rather than the bottom, the Republican party was reborn. And the first disciple of this new psuedo-economic strategy was Ronald Reagan, who, prior to Bush, was the worst President of the 20th century.

Of course Reagan spent the country into a recession to the point that Wanniski and Laffer almost feared that they'd be found out. But along came David Stockman and his "starve the beast" theory that argued for massive spending to prevent the Democrats from ever being able to discuss social or entitlement programs again.

Reagan, Greenspan, Winniski, and Laffer took the federal budget deficit from under a trillion dollars in 1980 to almost three trillion by 1988, and back then a dollar could buy far more than it buys today. They and George HW Bush ran up more debt in eight years than every president in history, from George Washington to Jimmy Carter, combined. Surely this would both starve the beast and force the Democrats to make the politically suicidal move of becoming deficit hawks.

And at the same time, they managed to convince the nation that the Democrats were the party of big spenders. Democrats couldn't hold a candle to these turkeys when it came to spending. They were as profligate as they were dishonest. So what happened under Clinton? Well, we managed, by 1999 to get a balanced budget (finally) and then actually start paying off some of the debt principal. Shocking, I know. But the GOP couldn't have that, so they trashed Clinton and moved into the next phase, W.

"If the Democrats are going to play Santa Claus by promoting more spending, the Republicans can never beat them by promoting less spending. They have to promise tax cuts..."

Ed Crane, president of the Libertarian CATO Institute, noted in a memo that year: "...Just cut taxes and grow the economy: government will shrink as a percentage of GDP, even if you don't cut spending. That's why you rarely, if ever, heard Kemp or Gingrich call for spending cuts, much less the elimination of programs and departments."

Go read the article for the rest of the story. It's a fascinating tale of lust, greed and betrayal. Well done Thom!