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Supply-Side Finally Explained Well,
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This review is from: Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity (Culture of Enterprise) (Hardcover)
One day in December 1974, while dining with some prominent officials from the Ford Administration, economist Arthur Laffer sketched his now-famous "Laffer Curve" on a napkin to illustrate the idea that, at some point, lowering taxes could actually increase tax revenues.
By retelling lore and providing lively anecdotes and insights like this one, Brian Domitrovic introduces the major characters, the "econoclasts," who were instrumental in the ascendency of supply-side economics in the modern era: economists, journalists, and politicians. In addition to Laffer, these include Robert Mundell, ultimately a Nobel economist; Robert Bartley, Wall Street Journal editorial-page editor; Jude Wanniski, a reporter whose book, The Way the World Works: How Economists Fail and Succeed, spurred the supply-side movement; U.S. Representative Jack Kemp, the former pro football player who championed supply-side theory and won passage of legislation putting the theory into practice; and more.
Domitrovic provides a well-researched and detailed account of the political struggle to assert supply-side policies in the late 1970s and early `80s. He tells about how, by the time Ronald Reagan became president, proponents of supply-side economics had succeeded in the marketplace of ideas to such an extent that even Congressional Democrats were largely in favor of providing tax cuts to spur economic activity. Domitrovic speculates on how, if the Carter Administration had not been so whetted to an objective of creating tax "fairness"--an objective that had no constituency--and had been more sympathetic to providing tax "relief"--which is what most Americans cared about--there might not have been a groundswell of support for Reagan's candidacy.
Of course, Carter's policies served only to exacerbate the stagflation that had characterized the American life in the 1970s. When Reagan and his supply-side advisers got to Washington, they applied the "policy mix" of stable money and tax cuts (a.k.a. "Reaganomics"), which is, as Domitrovic explains, the secret to escaping stagflation. Still, it took time for the policy mix to have an effect, because people had become so accustomed to the stagflation paradigm and were therefore so skittish about moving into the real economy. By 1983, he explains, with inflation low and returns and investment increasing, tension had built to such a point that the recession of 1981-82 could not last. Indeed, the asset-shifting that started at that time was to continue, nearly unabated, for two decades.
In light of the recent economic crisis and some uninformed observers' attempts to blame Reaganomics, Domitrovic suggests that revisiting the policy prescriptions that brought the United States economy out of the economic crisis of the 1970s, rather than hearkening back to the Great Depression, would be instructional. He provides a plan of action for the Obama Administration that he says would allow Obama to emulate John F. Kennedy, who applied the supply-side policy mix--before the paradigm had a name. He notes that Kennedy's attitude was that he was "going to have spectacular growth on his watch, no matter whom he had to cut deals with... and was clever enough to assign credit for his policy mix to his assistants, but the documentary record is clear that his Council of Economic Advisers got mugged by reality and over-ruled by its president" (292-293).
Thus, Domitrovic deftly explains the supply-side economics that has been dominant in American life in recent decades and he explains its relevance for the current economic situation.
Yet, even more important, Domitrovic provides a thorough explanation of the economic history of the United States, beginning with the phenomena that arose in 1913--the income tax and the Federal Reserve--and which allowed supply-side economics to be developed in the first place. To wit, he writes, "The income tax and the Federal Reserve... have shaped life as we have known it in the century since 1913. One thing is certain: there would have been no supply-side economics without the changes of 1913. For restraining the institutions created that year... is the essence of supply-side thinking... Without institutions like the Federal Reserve that can make large, sustained mistakes in monetary policy, and without an income tax that can significantly reduce the operating room of the private economy, there can be no policy levers for supply-side economics to manipulate" (27, 37).
For the excellent, detailed explanation of economic policies enacted and economic conditions that arose throughout the 20th century, this book should be required reading for students in American economic history courses. Domitrovic explains the intricacies of economic policies in lucid style and in plain terms.
This book is written in clear prose and in terms that can be understood by a layperson, and it focuses on the people and intrigue behind the supply-side movement. Consequently, this book would be a pleasure for the casual reader who wants to understand American economic life since 1913.
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Initial post: Dec 31, 2010 10:26:15 PM PST
It would be nice if there was at least 1 review of this book by someone who was not an ideologue.
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Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity (Culture of Enterprise)(15 customer reviews)