The Empire of Debt by William Bonner & William Bonner

Author:William Bonner & William Bonner [Wiggin, Addison & Bonner, William]
Language: eng
Format: epub
ISBN: 9781394201976
Publisher: Wiley
Published: 2024-05-07T00:00:00+00:00

ORIGINS OF SUPPLY SIDE

When supply-side economics first appeared in the US press, real economists were perplexed. They had never heard of it. There were no university departments specializing in it. There were no peer-reviewed papers. There were no scholarly books describing it. There were scarcely any economists claiming to be supply-siders. It was, apparently, a school of thought without a school. Some wondered if it also lacked a thought.

Traditional economists—mostly empire builders and world improvers, but of the Keynesian variety—had gotten themselves stuck on a teeter-totter. On one end sat inflation. On the other was employment. They could press down on one end, but the other would rise up and hit them on the chin. There seemed to be no way out. No free lunch. It seemed that they would have to pay for every something with something else. If they wanted to reduce inflation, it would cost them jobs. If they wanted to increase employment, consumer prices would rise.

Milton Friedman, among others, warned that Keynesianism was just folderol. As soon as people realized what the government was doing, the jig would be up. They would merely raise prices in anticipation of inflation, without increasing production. Stagflation—rising prices in a sluggish economy—would result. Other economists pointed out that any attempt to manipulate the business cycle would fail for the same reason. Once the policy was known, people would adjust their behavior to it, nullifying its effectiveness. They would not mistake inflation for greater demand: They would not increase production; they would not hire more workers; they would not spend more money. The only thing the policymakers could possibly do that would have an effect would be something people did not expect. And that could only be a policy of random manipulations—which would cause further confusion and who-knew-what results. Keynesians, even new Keynesians, never had any real answer to this problem. But that didn't stop them. They decided to ignore it. Meddlers and empire builders can't be bothered with theoretical problems; they are too busy creating a better world!

Stagflation came in the 1970s, just as Milton Friedman had said it would. It was not the better world the Keynesian economists had hoped to create. But it was the world they got. (Like everyone else, world improvers don't get exactly what they expect; they get what they deserve.) Stagflation posed a problem with no easy solution. Prices were rising, but employment was flat. Policymakers wanted to increase employment, but they were loath to add more inflation. They could try to lower inflation, but that would hurt employment even more.

Along came the supply-siders. They had no real solution. But at least they had a way to hide the problem. What both the public and the politicians wanted, they noted, was employment without price increases. They wanted a booming economy and no inflation. Voters wanted money from government; they also wanted to lower taxes.

The trouble with traditional conservative economists was that they were always pointing out the true cost of things. “There's no such thing as a free lunch,” was practically tattooed on their foreheads.

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