A supply-sider's juicy `inside' look at economic policymaking
The Supply-Side Revolution: An Insider's Account of Policymaking in Washington, by Paul Craig Roberts. Cambridge, Mass.: Harvard University Press. 327 pp. $18.50. The public is accustomed to inside accounts of political events by former politicians or top White House officials, books usually full of revealing or scandalous tidbits and one-sided accounts of policy fights. This book is unusual, if not unique, because it offers the same sort of juicy ``inside'' look at economic policymaking in the first 30 months of the Reagan administration. In it, Paul Craig Roberts, a former Treasury economist, reviews the struggle between traditional conservatives concerned about a ballooning budget deficit and ``supply-siders,'' like the author, fighting to retain unblemished the ``largest tax cut in history,'' that of 1981.
That 1981-82 fight bears a considerable resemblance to one under way in Washington right now over the same question: Should taxes be raised to reduce the deficit? Or should they be left alone to stimulate individual effort and business investment, with spending cuts alone reducing the deficit?
Donald T. Regan, secretary of the Treasury, and James A. Baker III were key antagonists in that 1981-82 struggle, with Mr. Regan usually opposing a tax hike and Mr. Baker pushing one behind the scenes. Curiously, the two are switching jobs.
Appearing on NBC-TV's ``Meet the Press'' last month, both said President Reagan was adamant in his refusal to raise taxes to cut the deficit. Said Secretary Regan: ``We cut federal spending -- period. That's the way to get out of it. Nothing else.'' Baker agreed.
Of course, President Reagan had the same line in 1981. He stuck to that position in his State of the Union message in 1982, temporarily squelching those like Baker and David Stockman, director of the Office of Management and Budget, who argued both behind the scenes and to some extent publicly for a tax increase. But about six months later the President negotiated the ``largest tax increase in history'' with congressional leaders.
Whether President Reagan's supply-side resistance to tax hikes will crumble again remains to be seen. This time he will have Mr. Regan closest to his ear in the White House, probably urging he insist on spending cuts rather than tax increases. Nonetheless, in the past, when the negotiating crunch has come, the President has always compromised.
Roberts's book is useful on three accounts:
1. It offers the most cogent presentation of supply-side economics I have seen. Some of the critics of supply-side economics set up something of a straw man by attacking only the most extreme supply-side view that tax cuts can stimulate so much extra growth in the economy that revenues will almost immediately rise sufficiently to cancel out the tax cut.
Roberts, who now holds the William E. Simon Chair in Political Economy at the Center for Strategic and International Studies, Georgetown University, is too sophisticated to make that extreme argument. But he is an ardent believer in the merits of cutting marginal tax rates to stimulate, over some years, that extra personal effort and investment which boost a nation's productivity and economy. ``Supply-side economics is the economics of a free society,'' he writes in conclusion. ``It will prevail wherever freedom prevails.''
With his column in Business Week magazine and an occasional contribution to the Wall Street Journal (where he had previously written editorials), Mr. Roberts remains probably the leading intellect behind supply-side economics.
2. The book tells in historical detail the battle within the administration among three schools of economic thinking -- traditional conservative economics (advocated by Murray Weidenbaum and David Stockman), supply-side economics (Roberts, Norman Ture, US Rep. Jack Kemp), and, to a lesser degree, monetarist economics (Beryl Sprinkel). As Roberts paints it, the battle was bitter and often, on the part of his opponents, unprincipled. cho Roberts's intensity is such that one wonders if he gave as much as he got in this struggle for power and influence within the administration. He tends to see the motives of his opponents as base, and his own as pure. That is probably not always the case. Still, the sharpness of his economic arguments often makes mincemeat of the supply-side opposition positions. Stockman and others were often decidedly inconsistent.
3. This well-written book tells how Roberts's opponents fought for tax hikes and influence with the President by strategic leaks to the press. Stockman in particular is shown as manipulating journalists, particularly those with liberal leanings, toward backing his positions. Roberts offers so much detail, with quotations from this and that columnist or editorial, that it seems he must have kept a file of the excellent daily press summaries turned out for top Treasury officials.
Many of the more modest supply-side positions are now widely accepted within economics and politics. Governments now pay at least lip service and sometimes real attention to the effect of their decisions on individual and corporate incentives to work and save.
Mr. Roberts and his supply-side backers want something more ambitious, however. They want to turn the nation's economy into a giant laboratory for their supply-side theories. They maintain that the Federal Reserve System could allow considerably more rapid economic growth without kicking off much more inflation, if taxes were cut to a level to simulate more work and investment. That rapid growth, they argue, would after a few years reduce the deficit to a manageable level, or even eliminate it. They blame the Fed for the deep 1981-82 recession, the huge deficit, and high interest rates.
That theory, however, has not been proved in experience solidly enough to convince the skeptics. To traditional conservative economists, the gamble of following a strict supply-side policy is too great a risk to the economy. The Congress (which, like the president, represents the people) is not prepared to cut spending enough to reduce the deficit sharply. So, these moderate conservatives argue, taxes must be raised and defense spending trimmed. They may well prevail again.
David R. Francis is a Monitor financial columnist.