Friday, April 13, 2007

Supply Side as Fantasy

I’m no economist, but I have long suspected that supply-side had a lot more to do with political marketing hype than it did with true economics. Comes now Paul Krugman (and Brad DeLong) weighing in with a more explicit articulation of the point (link). Part of what seems to be a burgeoning on-line discussion of the nature of supply-side, kicked off by the estimable Mark Thoma (link).

I’ve always been particularly irritated by the legendary Laffer Curve. I mean—of course it is true that “too much” taxing reduces revenue; the question is “how much.” And to draw a curve and find a limit, applying the methods of first-semester calculus—why, from 1870 to 1950, economists did almost nothing else. Laffer has about as much to do with the invention of supply-side as Abner Doubleday has to do with the invention of baseball (remarkably, one person who seems to agree with me on this is Laffer himself—see the Wiki article supra; he attributes it to, inter alia, John Maynard Keynes).

A somewhat more charitable view of supply-side comes from Greg Mankiw (link), who dredges up what may be the money quote (from Herb Stein): “"There is nothing wrong with supply-side economics that division by ten wouldn't fix."

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