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The New American Economy: The Failure of Reaganomics and a New Way Forward

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It should be recalled that Bruce Bartlett was one of the primary advocates of supply-side economics in the late 70s and early 80s. In fact he was one of the main authors of the Kemp-Roth bill, which called for steep tax cuts in the top marginal income tax rates to spur economic growth. Ronald Reagan ran with this idea in 1980 and tax cuts were enacted into law a year later, thereby ushering in more than two decades of robust economic growth. In 1981 Bartlett wrote a book about this experience called Reaganomics: Supply Side Economics in Action.

In his new book, The New American Economy, he tells us that supply-side economics has outlived its usefulness, at least for now. In the late 70's we had high taxes and high demand which caused inflation; today we have relvatively low taxes and also low demand, which causes deflation. Supply-side economics no longer needs to be advocated, for it has already become part of everyone's way of thinking. Even the Obama Administration has its share of supply-siders. The stimulus package called for tax cuts for the vast majority and a small increase for the top percentile, still low historically.

According to Bartlett, Keynesian economics or fiscal policy is the best response to the current crisis. This is an apostasy to his conservative friends, where Keynesian is always a pejorative for a big government spending program. However, with interest rates at the bottom, it is obvious that government spending is the only way out of the current liquidity trap. If business and the consumer are not spending the government must. Not surpisingly, Bartlett was in favor of this year's stimulus package, not for its tax cuts, which he thought ineffective, but for its public spending component.

In the current book, the author has some sharp criticisms, in turn, for his conservative critics. He has previously explained on how conservatism has gone astray under Bush II in his book Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. Here he reiterates that the notion that a tax cut can solve all problems is as ridiculus as it is damaging. A tax cut with a reduction in spending would have been welcome, but the starve-the-beast theory that has played out has led us to the financial precipice . This corrupt form of conservatism of the last 8 years has done such damage to our economy and federal budget that we have limited resources for the current crisis.

Ironically, the current crisis calls for further budget deficits as Bartlett has pointed out. But within this quagmire there is an opening for modern conservatism to emerge. Bartlett claims that he has not abandoned conservatism rather the so-called conservatives have. Conservatives should be dedicated to keeping government small and taxes low. For example, congressional Republicans should do more to shape the current healthcare debate by participating in it to keep costs down, rather than stand on the sidelines and attack any Demcratic attempt to cut, for example, Medicare or any other healthcare benefits. There is nothing conservative about this, it is pure partisan politics.

This book is the beginnings of a blueprint for building a better conservative or at least one that is relavant for today's crisis.

To say I was intrigued by a book subtitled "The Failure of Reaganomics" by one of its staunchest proponents is an understatement. I found an honesty in this writing I didn't expect, even if it comes across as somewhat self-serving at times.

Mr Bartlett starts out with a retrospective on the Great Depression and John Maynard Keynes. He confesses that he grew up professionally as a Keynes detractor, only to come around later in his career to realize that Keynes wasn't the one-dimensional figure he'd spoken out against - his policies had merit for their day, and his later writings calling for a return to fiscal conservatism, had gone largely unnoticed by Keynes' followers as well as detractors, including himself. Mr Bartlett does an admirable job of resurrecting Keynes as a conservative who sought only to save liberal democracy in the most expedient way. Here we get the most poignant lesson of the book.

The key theme in The New American Economy is that one size does not fit all. Mr Bartlett uses the person of Keynes as a teaching point. Keynes recommended a policy of government spending to lift the economy out of depression based on the need at the time, with the expectation that policy would change as the crisis du jour subsided; Keynes had no intention or expectation that policy makers would blindly apply one prescription to all ills. Through the rest of the book up to the concluding chapter, Mr Bartlett provides examples ad nauseum of the fact that blind prescription is what happened in fact. The parade of personalities and examples creates a muddle for the reader in the middle of the book, but the key themes are clear.

Mr Bartlett first outlines the "Keynesians" (who, he argues, bore little resemblance to what JM Keynes advocated); later he turns the pen on his own family - supply-siders in the 1970s who, like Keynes 40 years earlier, introduced a different approach more suitable to the crisis at hand. Following the success of Reaganomics (an ironic and self-serving assertion given the book's subtitle), supply-siders charted the same historical course as the "Keynesians" culiminating in Mr Bartlett's damning summary of GW Bush's performance as betraying the principles of conservatism and supply-side economics.

I'm unclear as to whether the final chapter is a contradiction of the rest of the book, or if it reinforces the key theme. Mr Bartlett abuses policy makers for their inability to contain spending, and advocates a Value-Added Tax as the next approach for the economic crisis we've borrowed ourselves into. He also beats the "save more, consume less" drum, which depends on an unlikely change in American behavior. The contradictions, of course, are with Keynes' advocacy of meaningful government spending (e.g., NOT tax rebates which are just saved - another contradiction?) and civic consumption to lift the economy out of recession/depression, and the fact that raising taxes in a recession is flat out bad policy. Perhaps, though, this is really saying no more than the 2008/2009/2010 economic crisis is different than - albeit similar to - the Great Depression, and requires a different approach. Mr Bartlett is not clear on this point.

The contradictions of the concluding chapter with the history lesson of the preceding pages left me feeling the book actually said nothing in its 200 pages. As a couple days have passed and I think back on the book, though, the key theme stands out more clearly, warning us of the dangers of turning economic policy into religion, even if the confusion and apparent contradiction of Mr Bartlett's "new way forward" hides it temporarily. "Religion" best describes my perception of today's political "dialog," and this cautionary tale is timely and welcome.

This book is very similar to R A Posner's recent 2009 book in which Posner decided to sit down and read the General Theory (GT;1936)instead of accepting what various economists claimed Keynes meant.The author is a libertarian-Austrian economist, like Posner ,who decided to actually read what it was that Keynes said in the GT ,as well as in his pre- and post-GT work .The author discovers that,for example,

(a)Keynes was opposed to deficit finance and budget deficits ,in general.Keynes favored "deficits" only for the provision and maintenance of public infrastructure, such as transportation ,seaports,airports,dam -hydroelectric systems,aquifers,reservoirs,etc. All of these projects would pay for themselves in the long run.Constantly updating and modernizing such infrastructure would go a long way towards minimizing the problem of involuntary unemployment.
(b)Keynes was a lifelong opponent of inflation and inflationary finance.However,he never mistook reflation for inflation .
(c)Keynes was opposed to discretionary expansionary and contractionary fiscal(tax cuts) and monetary (open market operations) policies to fine tune the economy over the short run.These policies would simply add to the uncertainty of the future.
(d)Keynes was a follower of conservatives like Adam Smith and Edmund Burke.Burke was one of the first to recognize the systematic and comprehensive nature of Smith's Wealth of Nations(1776). Keynes's last published article ,in the Economic Journal of April,1946,correctly emphasizes the fundamental importance of Smith's entire conservative moral,economic,political,social,and legal system of thought.
(e)Keynes believed in policy rules.

However, all of these conclusions could have been arrived at in the mid-1940's by any economist and /or historian who was familiar with Keynes's published work.The reason why the author did not read the publicly available corpus of Keynes's work is because he was mislead by nonsense written about Keynes by Henry Hazlitt,Ludwig von Mises,Murray Rothbard,F von Hayek,The Freeman magazine,etc.The latest nonsense about Keynes has been published by Hunter Lewis.

I recommend this book.One can compare it with the great number of quotations deliberately taken out of context by Lewis. It should not come as any surprise that Lewis is an ardent libertarian -anarchist follower of Hazlitt,Rothbard,von Mises,etc.

The author provides a concise yet comprehensive review of American economic and fiscal policy from the 1920s to present, tracing the trajectory of Keynesian thinking, and the Reaganomics that succeeded it. The author notes that both schools of thought have not only been perverted by subsequent practitioners, but in fact, neither school of thought is well-suited to the specific economic and political circumstances we face today.

I knocked a star off because the author was light on details for the new way forward, although I commend him for stating the glaringly obvious point that Congress refuses to admit: the "more tax cuts at any cost" approach is not a responsible tax policy.

When I picked up this book I was aware the author is closely aligned with conservative supply side economics of the Reagan era. A theory I find dubious at best. However, once I started reading it I could not put it down.

I read a lot of non-fiction books, especially business and economics titles. From the old classics, (Keynes, Hayek, Ricardo) to new releases, (Stiglitz, Phelps, Taleb). We all have our "thing" and this is mine. This book I rank high on my favorites list.

It has a brief history of Keynes with surprising quotes from him that suggest a conservative bent few acknowledge today. Included is correspondence between Keynes and Hayek that indicates the same goal: avoiding the temptation of societies to opt for communism out of economic desperation. They had different means, but the same objective.

This book is very well researched, with the perfect amount of statistical background. Too often economics books are packed with arcane and irrelevant numbers that make little sense to anyone but the author; measuring the meaningless ad nauseam. That is not the case here. He strikes a great balance.

Mr. Bartlett also makes a cogent argument for keeping what has worked for both Keynes and Supply side approaches, and ditching the rest. He basically makes the case there is little or no link between inflation and unemployment, and tax cuts don't pay for themselves but increase the public debt. He then suggests a new path that includes a value added tax to cover the social safety net, welfare state programs that are popular and will always be in place.

In my mind, as soon as elected officials acknowledges this, and also the link between low wages and the dependence of citizens on government, we will begin to make our way back to fiscal stability.

Great book. Don't miss it.

Here is a Republican going against the grain declaring the additional spending is indeed part of the solution. What does he know what the other Republican's don't? After all, he was one of Reagan's original disciples. He now says conditions are right to apply Keynesian economics to support Government spending as a jump start to monetary policy.

I found the book to be well researched and referenced. There were many pages of footnotes, and I appreciated the fact he read the original Keynesian scripts instead relaying of someone's interruption as he did when with his original critiques of Keynes.

The first chapter rightfully discusses deflation and the great depression. This lays a foundation of some important economics concepts, including a discussion of the money definition and money velocity. I found his discussions of the success and failure of the Fed and politicians during the 1930's to be very insightful.

I found the chapter on Supply Side economics helpful but incomplete. He did dicuss tight monetary policy to attack high interest rates, success of the Kennedy tax high end cuts from 90%, bracket creep, incentives, etc. He does argue the success of the Reagan's Supply Side policy in hindsight. But the fact that he never addresses the low end marginal rate provides insight to problems with the original theory. For example, he goes into lengths about the high end, from 90% for Kennedy and 70% for Reagan but there is no discussion about the marginal rate when Supply Side stops working. What about 50%, or 39%, or to the current 35%? This is the failure of Supply Side economics as we passed that threshold the very first time we used it and had to raise taxes as a result.

The "Starve the Beast" chapter was excellent. He argues that the continued use of Supply Side economics, when conditions no longer warranted it, have resulted in huge deficits. But somehow this all just fine with traditional Republicans because this would eventully require huge spending cuts, thus starving the beast. He says many Republicans abandoned their fiscal conservative roots for this reason. He argues this is a terrible way to govern. In hindsight in 2011 we know this is true: The parties can't agree on anything, we have a lower bond rating, and Republicans still call for 100% spending cuts when it's obvious the original tax cuts are a big part of the problem.

However, this does not mean he had adbanoned his Republicans roots, not by a long shot. In the chapter on fixes, he talks successfully argues the long term problem we have on Social Security and Medicare, although he greatly exaggerates the problem by going 75 years out to calculate the liability. He argues vaguely and unsuccessfully for entitlement reform and higher taxes in form of a European VAT tax. I would have like more discussion on raising the Capital Gains tax instead.

I rate this book at 4 stars because of it's intellectually interesting discussion of economics and also a good audit trail, if you will, as to how the Republican party lost it roots and why they are being so stubborn today. After all, they are still expecting benefits to accrue from starving the beast.

I highly recommend The New American Economy. The author shows an impressive understanding of economics, as well as an open mind toward ideas he formerly rejected (e.g. Keynesian economics). This book is the best analysis of "supply-side" economics, a vastly misunderstood subject. But his conclusion seemed to contradict one of his chapters. He demonstrates, fairly convincingly, that high taxes are counterproductive, and yet he concludes the book by calling for a large tax increase. I should also note that the subtitle is misleading; Bartlett spends much of the book defending Reagan's tax cut.

I had seen Bruce Bartlett on some talk shows promoting this book and there wasn't much more in the book than what he said on the talk shows, other than a bit of a history lesson on the great depression, taxation, and Keynesian and Supply Side Economics. Mr Bartlett's idea of a VAT tax (or even a flat tax for that matter) would greatly simplify our tax code (imagine a life without having to do tax returns) and help the government fund it's programs while helping to reduce the deficit.

Bruce Bartlett is a history major who did his masters thesis on the Pearl Harbor attack. Along with the likes of Lawrence Kudlow, Neil Cavuto and Jerry Bowyers, he is a contemporary pop-economic hack who obtained his knowledge of economics from listening to politicians and reading bumper stickers.

And he had a hand in causing the problem that we're in today as he admits in his book. He also admits that they did it on purpose. It wasn't an accident. It was intentional!!

Over thirty years ago he was one of many who advocated what is popularly known as a "starve-the-beast" viewpoint. Politicians who didn't have the integrity or the strength of character to fight for cuts in spending believed that if they reduced income significantly, then other politicians would be forced to reduce spending. They believed that if they continued to run deficits and continued to run up the national debt, then eventually someone in the government would cut spending. As adviser to Reagan and Treasury official under Bush 41, Bartlett promoted this atrocious policy.

It didn't work. While they continued to push for tax cuts, they never fought for spending cuts. The deficit continued to grow and grow, and now we are in such a hole that it is going to take decades to climb out. And it was intentional. They ran up the national debt on purpose. He's not evil. History major Bartlett actually thought it was the best thing to do for the country.

So why should we pay any attention to Bruce Bartlett?

Answer: he has something to say. And what he says is quite frightening. The national debt is chump change when compared to the unfunded obligations for Social Security and Medicare. It's a very serious message that everyone in America should note. Former U.S. Comptroller General David Walker has been sounding this alarm for years. Bartlett should at the very least be given some credit for finally catching on.

Unfortunately his answer to the problem is pathetic and shallow. He's basically surrendering. Rather than fight the big spenders, he surrenders to them and advocates higher taxes. Whereas before he cowardly advocated the "starve-the-beast" outrage to avoid fighting the big spenders, now he just goes ahead and surrenders to them.

This book is just the next episode of Bruce Bartlett pushing his idea for a value added tax (VAT). In his previous book about the Bush administration and in his weekly Forbes column, Bartlett pushes and pushes his VAT idea. He is convinced that tax revenues must be increased significantly, and he is convinced that the VAT is the best way to do it. This book is just more advocacy for the same idea.

The book is a pleasurable read. He reviews from his perspective American macroeconomic history and policy from the Great Depression era through today. He explains how Keynes' theories were born and how they were manipulated and misunderstood and then misapplied, and he explains how supply-side economics was born and how it was manipulated, misunderstood and misapplied by ignorant leaders to the detriment of the nation. He blames this mostly on Bush 43.

The subtitle is misleading. "The Failure of Reaganomics" In the book he makes no mention of any failure of Reaganomics. Reaganomics was and is good. The problem was that it wasn't fully implemented. When we think of Reaganomics, tax cuts automatically come to mind. But Reagan was clear that cuts in spending were a necessary part of it. I remember Mitt Romney's speech when he suspended his campaign for President in 2008. I thought, "Wow. Mitt Romney." Politicians say wonderful things. Unfortunately, they don't always do those things. We got the tax cuts. But we never got the spending cuts.

Bartlett's claim to fame is that he called out Bush II for his irresponsible combination of stimulative spending and 'starve-the-beast' tax cuts, Reagan for his following supply-side economics, and now Republicans for their claims that seemingly every problem can be solved with another tax cut, that tax cuts have a more stimulative impact than government spending, and that tax cuts won't help a limited demand problem. (There is also the argument that some government spending, such as for infrastructure or green-energy R&D, is more valuable than consumer spending for items 'Made in China.') However, he also follows their mantra that Smoot-Hawley put the 'great' in the Great Depression, ignores the deflationary impact of staying on the gold standard, and is oblivious to the ways to reform health care and thereby lower Medicare expenditures instead of just raising the retirement age. Simplified thinking like that is what has flattened our economy by offshoring millions of jobs, wasted trillions in smug deficit and stimulus wasted spending, and led to enormous trade and government deficits.

At the beginning of Bartlett's career we were plagued by high inflation and a stagnant economy; now its deflation and a stagnant economy. Now he wants to give us a new tax (VAT), instead of reducing excessive health care, education, defense, and other government spending (compared to other nations) and learning from the much more successful 'Asian economic zoo' (Korean and Taiwanese tigers, Chinese dragons, Japanese koi, and Indian elephants).

Read something by Stiglitz, Roubini, Justin Lin, or Ha-Joon Chang instead.