The New American Economy by Bruce Bartlett

Author:Bruce Bartlett
Language: eng
Format: epub
Publisher: St. Martin's Press
Published: 2009-04-27T04:00:00+00:00

CHAPTER 6

STARVING THE BEAST DIDN'T WORK

One weakness of the supply-side argument that became increasingly apparent over time was its lack of focus on the spending side of the budget. The problem is that in the long run revenues must equal the level of spending because all spending eventually has to be paid for. To a certain extent, this fact was glossed over by hopes that faster economic growth would recoup some of the revenues lost to a tax cut and simultaneously reduce the demand for spending on programs such as unemployment compensation. But there was also a belief among supply-siders that tax cuts would force cuts in spending.

The idea that tax cuts would channel concerns about budget deficits into political pressure to cut spending has come to be called starving the beast. Although there was good reason to believe that this strategy might work when it was first proposed—a period when high inflation and interest rates created strong opposition to deficit spending—the budgetary experience of recent years, in which large tax cuts have been accompanied by large increases in spending, has thoroughly destroyed its validity. Indeed, some economists now believe that the starve-the-beast theory may be perverse, leading to higher spending and deficits.

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