Evidence debunks supply side economics, but the voodoo cult won’t give up. How it could soon get a lot worse
Monday, Oct 6, 2014
Supply-side economics – the idea that tax cuts pay for themselves by generating a wave of new spending and job creation – appears to be on its death bed. Not only did it fail to work in the Reagan administration, but its disastrous budgetary consequences may well spark the defeat of the conservative Republican governor of Kansas – Kansas! – this year.
But don’t declare victory just yet, economist Paul Krugman admonishes readers in his New York Times column today. Supply-side economics, which George H. W. Bush memorably derided as “voodoo economics” during his unsuccessful 1980 presidential campaign, may actually be poised for a comeback.
That’s not to say that decades of economic scholarship is about to be upended and supply-side economics will soon be demonstrated to work. Instead, voodoo economics could soon rear its head in the form of a magical type of math called dynamic scoring.
Dynamic scoring, Krugman notes, is wonkspeak for economic forecasting that assumes tax cuts will generate the economic stimulus their champions claim. The problem? Data confirm that voodoo economics is, well, voodoo. Supply-side tax cuts don’t generate the investment, productivity, employment, wage, or GDP gains their proponents assert. Meanwhile, Krugman points out, the Bill Clinton administration witnessed both tax increases and faster expansion in GDP, jobs, wages, and family earnings than occurred during the supply-side Ronald Reagan era.
But if Republicans win control of the Senate and thereby gain full control of Congress this year, there’s reason to believe that they could push the Congressional Budget Office to adopt dynamic scoring in its forecasts, effectively embedding supply-side economics’ magical thinking in the nonpartisan office’s work. Paul Ryan, Krugman observes, has suggested as much.
That means that when Ryan and congressional Republicans propose a budget dramatically cutting taxes, the CBO would have to suspend disbelief and assert that the tax cuts would unleash substantial economic gains. And then – voila! – Ryan and the GOP could wield the coveted CBO stamp of approval as evidence of their budget’s soundness.