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The Economic Far Right & the G.O.P.

Interesting Op-Ed by Jonathan Chait in today's NYT: Captives of the Supply Side. Chait makes the interesting argument that as far as the GOP is concerned, it is not the religious right, but the economic far right that calls the shots:

"Last year, Senator John McCain earned widespread ridicule for publicly embracing Jerry Falwell, whom he had once described as “evil.” But an equally breathtaking turnabout occurred earlier in the year, when Mr. McCain embraced the Bush tax cuts he had once denounced as an unaffordable giveaway to the rich. In an interview with National Review, Mr. McCain justified his reversal by saying, “Tax cuts, starting with Kennedy, as we all know, increase revenues.” It was the political equivalent of Galileo conceding that the Sun does indeed revolve around the Earth."

That's a pretty fair assessment of the Supply Side camp in the Republican party.  Enthralling my pal Larry, they dominate the economic debate to the point where there is no debate:

"Mr. McCain is not alone. Every major Republican contender — Rudy Giuliani, Fred Thompson, Mitt Romney — has said that the Bush tax cuts have caused government revenues to rise. No prominent Republican office-seeker dare challenge this dogma for fear of offending the economic far right.

Yet there is no more debate about this question among economists than there is debate about the existence of evolution among biologists. Most economists believe that it is theoretically possible for tax rates to be high enough that a reduction in rates could actually produce more revenues. But I do not know of any tenured economist in the United States who believes this is true of the Bush tax cuts.

Granted, economic growth sometimes causes revenues to rise faster than expected after a tax cut, as has happened since the 2003 tax cut. But sometimes revenues fall faster than expected after a tax cut, as they did after the 2001 tax cut. And sometimes revenues rise faster than expected after a tax increase, as they did after the 1993 Clinton tax increase.

Even very conservative economists who have worked for the Bush administration — including Greg Mankiw, a former chairman of the Council of Economic Advisers under President Bush who is now an adviser to Mr. Romney — have publicly stated that today’s tax revenues would be even higher were it not for the Bush tax cuts."  (emphasis added)

That's a fascinating observation. Apparently, this belief is heresy:

"No Republican candidate can risk committing heresy by acknowledging this bipartisan consensus among economists. On social issues, however, Republicans actually tolerate diversity of thought. For example, Mr. McCain, Mr. Giuliani and Mr. Thompson all oppose, on federalist grounds, a constitutional amendment to ban gay marriage."

Meanwhile, lots of credible economists are quite critical of the Supply Side argument (as well as some amusing goofs) -- including Greg Mankiw.

And as we've long said here, the main credit for the current expansion lies with the Fed's Ultra-low rate cuts, and global growth -- not either the 2001 or 2003 tax cuts.

I am curious: is there a general consensus amongst readers as to whether or not Supply Side is legit or not?

What say ye?

>

Source:
Captives of the Supply Side
Jonathan Chait
NYT, October 9, 2007
http://www.nytimes.com/2007/10/09/opinion/09chait.html

Tuesday, October 09, 2007 | 04:18 PM | Permalink | Comments (150) | TrackBack (0)
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Comments

Depending on what varibles one holds constant in one's model, supply-side has its place, but given the overwhelming supply of liquidity injected by the FED, and global markets, a tax-cut actually takes away from revenue. In other words: put too much grease on the chain and the chain slips/skips on the sproket. How could anyone argue otherwise?

Posted by: Justin | Oct 9, 2007 4:39:33 PM