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Yes: Meeting consumers' needs worked wonders for ReaganNo: A round of federal spending can create millions of jobs

Published: Sunday, July 8 2012 12:00 a.m. MDT

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Roland Kayser
Cottonwood Heights, UT

Reagan achieved success with Keynesian economics. Tax cuts financed with deficits are a form of Keynesian stimulus just as is deficit financed spending. Contrary to what conservatives today say, Reagan increased federal spending, also financed by deficits.

Even the architects of Reagan's tax cut plans have said that there are no more supply side gains to be had today because our taxes are now much lower. Reagan cut the top marginal rate from 70% to 50%, it is now 35%. Capital gains taxes are now 15%, almost half of what they were under Reagan. (See Bruce Bartlett: Why Reagan's Tax Cuts Worked, and Why They Would'nt Today)

a bit of reality
Shawnee Mission, KS

Good article—it's refreshing to hear two opinions on the same question.

The fact of the matter is that entrepreneurs now have tax rates lower than what they had under the Reagan/Bush years, and they also have much, much cheaper access to capital (through low interest rates) than they did under Reagan/Bush. Businesses have a ton of extra capital floating in their coffers, earning 0% interest, and they generally can't figure out anything to do with it to make it productive.

Supply-side economic policy can help in some situations, but not all.

David King
Layton, UT

"Most economists are well aware of what the problem really is, since it is so simple and basic."- Mark Weisbrot

What if, despite what Paul Krugman asserts in his ananlogy, the economy is not so simple as a car? What if "fixing" the economy is not so simple as electing Romney or Obama? What if the greatest step we could take towards economic recovery is understanding that we often can't predict the future, and attempts to control it can be counter-productive. I see neither side trying to explain what caused our current mess in the first place. Simplistic explanations of "It's all Bush's fault" or "It's all on Obama" just don't cut it for me. What if we took a look at the collusion of Wall Street and government in the inflation of the housing bubble? Austrian economist F.A. Hayek made my point best when he said:

“To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.”

SEY
Sandy, UT

I agree with Roland in this instance. Supply-side and demand-side economics are two sides of the same coin. In order for either of them to work, there must be a preceding period of monetary contraction. It worked so well for Reagan because of the preceding period of high interest rates which severely contracted the money supply. Economic booms are created by expansion of the money supply, which are created by low interest rates, easy-to-obtain loans and government spending. Once the money supply has expanded beyond a certain point, however, it becomes counterproductive to expand it any more. That's where we are now. Even government expenditures creating jobs is not sustainable. There is no such thing as economic pump-priming, contrary to what the Keynesians say.

So what is the solution? Unfortunately, there's not one that will get anyone elected. The money supply has to contract, and zombie businesses supported by bailouts and other crony capitalist tactics have to be allowed to fail. Politicians and economists who promise any other solution are...what's the word?...lying. Both Krugman and Romney are wrong.

Eric Samuelsen
Provo, UT

This was interesting. The supply side argument misread Keynes almost preposterously, and also got its history dead wrong. The Keynesian argument got Keynes right, and proposed modest and thoughtful suggestions that actually have a chance of working.

Pippin
Kaysville, UT

Blustery articles both.

Imagine a small island economy of two men. One is adept at climbing coconout trees to get food. The other produces nothing.

Does IdleMan's need for sustenance constitute Demand in this economy? Will his Demand grow the economy? No!

CoconutMan generously brings IdleMan coconuts to sustain him. In time, CoconutMan tires of this arrangement and quits. Then IdleMan must choose to produce something for trade, to force CoconutMan to feed him, or starve.

Let's assume IdleMan chooses life and trade over force.

IdleMan learns weaving and trades his weaves with CoconutMan. IdleMan (now WeaveMan) has learned that his need alone does NOT constitute demand; he needs to produce something to trade, or in other words, he must SUPPLY something.

In a free society, supply precedes demand.

Keynsianism relies on force. Wishes alone constitute demand nevermind making anything to trade. If you want it, you take it. But forcing your neighbor is risky business, so Keynsianism's favorite trick is to loot the next generation through borrowing, doling out the borrowed funds as handouts NOW and passing the bill to babes in the cradle who can't fight back... until after the Keynsian is long dead.

red state pride
Cottonwood Heights, UT

"In fact, the federal government can borrow at 1.6 percent interest today for 10-year bonds. This is basically free money; and for those who want it to be absolutely free, the Federal Reserve has created $2.3 trillion since 2008 and can create more if the federal government is willing to spend it."...from the counter argument. Wow..who knew? The Federal Reserve can simply create money! 1.6% interest is free money! Except in ten years when those bonds roll over (or will we print money to repay them?) the interest rate may be 7% or 15% or 30%. We don't know- which is why it's dangerous to even have a majority of our debt in long term instruments.
@Roland- I think liberals tend to forget that the "Laffer Curve" is a Curve not a straight line. No rational person would ever say that continuing to lower tax rates will increase or maintain tax revenue. Any rational conservative (and I've been irrational before) should know that we have to increase revenue to the Federal Govt. We also need to cut spending. Unfortunately the Affordable Care Act increases taxes and spending..not good

Nonconlib
Happy Valley, UT

"Encouraging the production process fosters economic growth by satisfying the wants and needs of more people at decreasing cost." Weeeeelllll . . . what the pro-supply-side argument always leaves out is the consequence of producing things at a decreasing cost. In order to produce stuff at lower cost, you have to decrease the cost of labor, either through shipping jobs off to Vietnam or through replacing workers with technology. We've tried both, and what is the result? An economy full of consumers with less disposable income than we had last year. And yet we're supposed to buy all the stuff that increased production generates. Hello. Is anyone home in the Republican Party? The philosophy that brought us sky-high deficits and a sinking economy is now supposed to save us from the very mess it created? How can we take this nonsense seriously?

red state pride
Cottonwood Heights, UT

@nonconlib: so are you in favor of going back to the horse and buggy and outlawing any machinery that increases productivity e.g. automatic drink dispensers at McDonald's? God forbid we would ever become more productive- I mean that dreaded productivity increases the wealth of a nation and why would we want that when we can simply print money?

Truthseeker
SLO, CA

Yes, Reagan ushered in tax cuts--then raised taxes every year except the first and last years of his two terms. These included a higher gasoline levy, a 1986 tax reform deal that included the largest corporate tax increase in American history, and a substantial raise in payroll taxes in 1983 as part of a deal to keep Social Security solvent. While wealthy Americans benefited from Reagan's tax policies, blue-collar Americans paid a higher percentage of their income in taxes when Reagan left office than when he came in. The Tax Equity and Fiscal Responsibility Act of 1982 was, at the time, the largest peacetime tax increase in U.S. history.

Steve Jobs, Bill Gates and many others were not wealthy when they began their enterprises. Private equity firms typically do not invest in new start-ups, that is more the purview of venture capitalists. It takes demand to drive down prices. No one can ever produces a large amount of product unless the demand is there. (When Romney was at the helm of Bain Capital 80-90% of their investment was in leveraged buyouts, not venture capital).

But the system we have now favors financial schemes.

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