Reagan's ex-Treasury deputy: Reaganomics is not supply side
Paul Craig Roberts quit his job at the Treasury Department last month. He was circumspect when in office, but now that he no longer works for the President of the United States he can speak his mind.
''Nobody knows what the tax policy is,'' he says. ''Nobody knows what the budget policy is going to be. It's that kind of uncertainty that means the administration has no economic policy.''
Mr. Roberts now is a professor of political economy at Georgetown University here. Until Feb. 1, he was assistant secretary of the Treasury for economic policy. Sweep away the weighty title and what you had was one of the administration's highest-ranking devotees of supply-side economics. A firm believer in the supply-side premise that slashing marginal tax rates will unleash growth and investment, he played a key role in the push to pass last summer's massive tax cut.
But now he believes President Reagan's Economic Recovery Tax Act has proved to be a rather dull rate-cutting knife.
''The tax cuts (for individuals) have been overcome by bracket creep,'' he says. ''The business community can't take for granted that (business) tax cuts are going to stay there for long.'' So businesses are sitting on their cash and waiting to see whether Congress will change its mind, he explains.
The result, Roberts says, is that ''Reaganomics'' has no ''supply side'' ingredients at all.
''There are really no strong supply-side policies in effect. They were put on the back burner by (Budget Director David) Stockman over a year ago,'' he says.
Mr. Reagan's election made ''supply-side economics'' suddenly fashionable, along with furs and jellybeans. The phrase became a buzzword sometimes used to describe the whole Reagan economic program.
But it is a curious fact that many supply-side loyalists, those who helped mix its pastiche of old theory, new policy, and inspired packaging, are dubious about the reality of Reaganomics. Democrats think Reagonomics goes too far; supply-siders feel it is weak-kneed, and doesn't go far enough.
''It's in the right direction,'' says the economic adviser to a US senator who has pushed hard for supply-side policies. But, because of the deteriorating economy, ''it would have taken a much more massive tax cut'' to provide the incentives for investment that lie at the heart of supply-side theory.
''There is an incentive there. It's just significantly reduced,'' says the adviser.
In general, ardent supply-siders have three main opinions about current economic policy:
1. Don't fool with the business tax cuts. Both Democrats and mainstream Republicans are calling for a corporate minimum tax, and for rollbacks in the controversial ''leasing'' provisions that allow companies to sell their tax breaks. Supply-siders say such action would defeat the whole purpose of the tax bill.
''You're essentially talking about doing away with two-thirds of the business tax cuts,'' says the senator's economic adviser.
2. Don't get sweaty palms at the sight of the deficit predictions.
''The deficit is basically an inconsequential temporary result of restructuring tax policy,'' says supply-sider Roberts. ''You don't want to have a deficit. It has no positive contribution to make to policy. But economic growth gradually takes it away.''
3. Go back to gold. ''Stability'' is a favorite word of supply-siders. Most of them feel the Federal Reserve Board is as stable as Birnam wood, the forest in ''MacBeth'' that marched about when no one was watching. Never mind that Fed chairman Paul Volcker has held on tightly to the money supply this year; supply-siders complain about weekly blips and bulges, and feel that money should be anchored by something beyond government control.
''We still need a credible long-term monetary policy, and that means gold,'' says Alan Reynolds, vice-president of Polyconomics, the econometric firm of supply-side activist Jude Wanniski.
More traditional economists do not care for the gold standard. Most of them echo George Washington University professor Amitai Etzioni, who calls a return to gold ''a nutty idea.''
Supply-side economists also have been pilloried for the ''Laffer curve,'' the theory developed by economist Arthur Laffer that claims a tax cut could quickly pay for itself. According to the theory, revenues lost through cutting tax rates would be made up by taxes taken on the resulting boom in economic activity.
This is the theory (allegedly outlined on a restaurant napkin) that sparked George Bush's famous ''voodoo economics'' comment, and caused a Carter adviser to label 1981 ''The Year Of The Quack.'' Many supply-siders now say it represented a radical fringe.
Calling the Laffer curve an ''extreme statement,'' Roberts says it also gave supply-side economics a helpful boost.
''If it had not been for Jude (Wanniski) and Art (Laffer) attracting a lot of public attention, it is entirely possible academics would have kept supply-side economics buried in the universities for 20 years,'' says Roberts.
Supply-siders say there have been few serious efforts to explain their discipline. ''In fact, supply-side economics affords no magical nostrums,'' says Treasury undersecretary Norman Ture in a book to be published by the conservative Heritage Foundation. Its roots are in neoclassical economic theory, he claims.