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Tough times for tax fighters

THE NEW AMERICAN ECONOMY:
The Failure of Reaganomics and a New Way Forward
By Bruce Bartlett
272 pp. Palgrave MacMillan $28

Reviewed by Mike Marcoe

If Bruce Bartlett, an early architect of Reaganomics and Republican supply-side economics, is correct in his analysis of what’s wrong with the economy right now, and if we take his advice on how to revive it, then a lot of the rich people who benefited from supply-side economics over the last thirty years aren’t going to call him their friend anymore. Bartlett is already considered by some to be a traitor to his old party. He is the author of Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. For writing this book, he was fired from his job at a Republican-aligned think tank, the National Center for Policy Analysis, and now remains a pariah.

Which makes his work all the juicier to read. Bartlett argues that supply-side economics, which was the solution du jour for many decades, has outlived its usefulness and cannot address the ills that lie beneath our present economy. The title of the book is thus misleading: Reaganomics didn’t really fail, according to the author; it simply won’t work in today’s deflationary environment.

He makes his argument in a well-researched book. Over a quarter of it is appendices and footnotes. It’s also demanding. He assumes you know your economics as he moves easily from one topic to another in a long historical analysis of what led up to supply-side economics.

Bruce Bartlett is an economic historian who has spent 30 years in politics and public policy, working as a policy adviser to Ronald Reagan and in the Treasury under George Bush the elder. Since he is an historian rather than an economist, he works with a reasonably detached perspective that explains why supply-side economics developed in the first place. Indeed, he devotes nearly all his book to the history of Keynesian economics, a predecessor of Reaganomics, and supply-side economics in the twentieth century, paying particular attention to the Great Depression, stopping at the post-World War II period, then moving on to the administrations of Eisenhower, Kennedy, and Nixon. In different ways, each of these was a factor that led up to the “Reagan Revolution.”

The end of World War II presented both economists and policymakers with a problem. It was widely believed that the war was what ended the Depression, but coupled with a closing of the frontier, low population growth, a dearth of new inventions and other dampening factors, the economy was also expected to slip back into depression soon. There is enough historical research to bear this out; the point is that Americans had to do whatever they could to keep production and consumption going and markets open and vibrant. It was in this atmosphere that supply-side began to take shape, and the author’s forgiving picture of history assures us that it wasn’t for greed alone that Republicans, and later Democrats, adopted it.

But as it runs its course into the new millennium, supply-side economics is failing, just as Keynesian economics failed to contain inflation and slow growth by the 1970s. Bartlett claims that it cannot address the current economic realities of deflation and low demand.

Unlike many economists who are hardcore ideologues, he does not continue to push one policy for all environments. This is one of the refreshing aspects of learning your economics from a historian rather than an economist. Each economic theory has its rightful day in the sun. The next one to step into the light, if Bartlett has his way, will be an increase in both taxing and spending. This is his solution not only to the current economic mess but to the newest big elephant in the room: the large numbers of retiring Baby Boomers and the massive sum of their entitlement costs. Supply-siders’ insistence on cutting taxes will not work anymore, says Bartlett, partly because the old days when large numbers of Boomers contributed to the Treasury through their earnings are drawing to a close. According to this book’s figures, our liability for Social Security and Medicare is in the tens of trillions of dollars.

And this brings up those big taxing and spending taboos that Republicans stake their elections on. Bartlett argues coherently that this is exactly where we have ended up. The ride is over. The day of reckoning is here. He is a major supporter of the value-added tax, which is similar to a sales tax—it is the main source of government funds for the European Union. He claims that numerous politicians in Washington actually favor the VAT but fear saying so in public:

I myself long opposed the VAT on money-machine grounds. I changed my mind when I realized that there was no longer any hope of controlling entitlement spending before the deluge hits when the baby boomers retire; therefore, the United States now needs a money machine.

A tax like the VAT or any other will surely prompt soul-searching by Republicans, for several polls now show that the public is now more ready than before to raise taxes ... on the rich, that is.

In the closing, Bartlett says:

In the end, the welfare state is not going away, and it will be paid for one way or another. The sooner Republicans accept that fact, the sooner they will regain political power.

If this architect of Reaganomics is correct, the anti-tax right wing is in for some very trying times.

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Mike Marcoe is a writer and editor from Middleton, Wisconsin. He specializes in writing personal finance articles and editing scholarly books. He has published over 100 articles, a book on anxiety disorders, and a book of short stories. He has also worked as a chef and a business manager. In his day job, he is the director of content development for the Educated Investor. When not working, he plays a variety of ethnic flutes, cooks vegetarian cuisine, and writes fiction. His Website is http://www.mikemarcoe.com.

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