April 10, 2013

Headlines revive memories of '80s supply-side economics

Adam Geller / The Associated Press

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U.S. President Ronald Reagan and Britain's Prime Minister Margaret Thatcher: Their belief in conservative supply-side were as central to the story of the 1980s as Michael Jackson's moonwalk.

AP

"I think to the extent that anyone is thinking about supply-side anymore it's nostalgically. It's not with an expectation that it's going to make a comeback," said Ed Yardeni, president and chief investment strategist for Yardeni Research

"In many ways, Stockman's book is just a scathing indictment of how the supply-side revolution has been taken apart by a counter-revolution, by the promoters of big government," he said.

With Washington focused on gun control, immigration reform and other issues, attention to the economics debate as embodied by Stockman might not have lasted. But Thatcher's death Monday unearthed memories of the economic malaise that saddled both Britain and the U.S. through the early 1980s. It was characterized by high inflation, weak financial markets, multiple recessions and, in Britain's case, the sense of "an economy that was producing goods that nobody wanted to buy," said Brian Domitrovic, author of "Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity."

In obituaries and recollections, observers recalled how Thatcher cut back on regulation, cut taxes and reduced government's role in enterprise, to recast the British economy. In doing so, she adopted some tenets of the economic gospel preached by Laffer. According to Washington legend, he had introduced the basics of supply-side to Nixon-era officials Dick Cheney and Donald Rumsfeld during a 1974 lunch at a restaurant not far from the White House by drawing, on a cocktail napkin, a curve showing the tradeoff between tax rates and revenue.

To Domitrovic, the revived debate over old economic ideas is a sign that people have not forgotten the crises of the 1970s or the way the Reagan and Thatcher administrations wrestled with them.

"When these great names come up, there is a sense of impressiveness and a kind of awesomeness," said Domitrovic, chair of the history department at Sam Houston State University.

Laffer, who runs an economic consultancy in Nashville, said there are still many believers in supply-side ideas, which he maintains are just as applicable to the huge deficits and economic sluggishness of today as back then.

"I don't think it's Thatcher's death that brought it back or Stockman's resurrection," Laffer said. "I mean, do you think the economy is doing well?"

Even now, the legacy of 1980s economics is quite vibrant, he said. Despite Obama's quest to raise taxes on the wealthy, no one in Washington would consider returning to the policies inherited by Reagan, who lowered the top tax rate from 50 percent to 28 percent, Laffer said. And in states like Kansas and Wisconsin, many governors, most of them Republicans, are working to cut taxes and reduce the size of government, he said.

Others, though, say memories of 1980s economic ideas have largely faded. Their prediction: Even the current turn in the spotlight will be brief.

Bauman, the economic comedian who billed a 2008 series of performances as his "Supply Side Tour," points out how much times have changed. Stumbling on such old economic policies now, Bauman says, is like rummaging through a pantry and finding a bag of chocolate chips with an expiration date from long, long ago and realizing that something once delicious might now be better to leave out of the recipe.

On stage, he introduces himself as a supply-side economist who does standup and lets the jokes trickle down, a line that wins knowing chuckles. But during frequent performances on college campuses, he notices that a joke about the Laffer Curve often brings groans or simply blank stares.

To get the joke about the economics of the 1980s, Bauman said, it helps to have been there.

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