The Supply-Side Consensus

Brett Swanson points us to today's WSJ op-ed by Nobel Prize-winning economist Robert Lucas:

In the past 50 years, there have been two macroeconomic policy changes in the United States that have really mattered. One of these was the supply-side reduction in marginal tax rates, initiated after Ronald Reagan was elected president in 1980 and continued and extended during the current administration. The other was the advent of “inflation targeting,” which is the term I prefer for a monetary policy focused on inflation-control to the exclusion of other objectives. As a result of these changes, steady GDP growth, low unemployment rates and low inflation rates — once thought to be an impossible combination — have been a reality in the U.S. for more than 20 years.

When I talked to my colleague Bill Niskanen  (former acting chairman of the CEA under Reagan) about Chait's TNR excerpt, he told me exactly the same thing Lucas is saying. It should be pretty obvious that there is nothing discreditable or crackpot about the now-common observation that the supply-side revolution has become part of a broad consensus about macroeconomic policy among economists. Progressives who insist on going on and on about crazy supply-side tax cuts sound to me a lot like certain libertarians raving about the dangers of fiat currency. It's the insistence on revisiting a debate that already soundly concluded, largely because of the way history panned out. The argument is even weirder the second time around, once you already know what actually happened.
Anyway, as OG supply-sider Bruce Bartlett put it:

Today, hardly any economist believes what the Keynesians believed in the 1970s and most accept the basic ideas of supply-side economics — that incentives matter, that high tax rates are bad for growth, and that inflation is fundamentally a monetary phenomenon. Consequently, there is no longer any meaningful difference between supply-side economics and mainstream economics.

This really doesn't strike me as fertile ground for successful leftwing point-scoring.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center