If you accept the tongue in cheek definition of insanity being “Doing the same thing over and over and expecting a different outcome”, you would have to conclude that the current crop of Republican Presidential hopefuls are insane.
If you accept the tongue in cheek definition of insanity being “Doing the same thing over and over and expecting a different outcome”, you would have to conclude that the current crop of Republican Presidential hopefuls are insane.
In the New Hampshire debate last night, these Republican Presidential hopefuls suggested a return to the same economic ideas that President Bush implemented that at the end of his Presidency led to the worst economic downturn since the great depression. If those ideas are so great, why did we have a great recession? Why wasn't the economy strong enough to shrug off the mortgage and banking crisis?
The rationale that you typically get for the modern Republican model of handling the economy was repeated by Newt Gingrich last night in his comments and that is that we had this great economic recovery and bull market during the Reagan administration after he implemented supply side economics. The problem is, that isn't true.
We had an economic recovery because at the beginning of Reagan's Presidency the oil supply crisis that started in 1979 due to the Iran hostage crisis and the Iran-Iraq war started to ease. The price of a gallon of gas went from around $1.50 a gallon at the beginning of Reagan's Presidency to around $1.00 a gallon in the middle of his Presidency, a decrease of around 33%. Coincidentally, unemployment rose during the first half of Reagan's Presidency and then, after the price of gas began to fall, unemployment similarly started falling.
An equivalent in today's gas prices would be if gas prices decreased from an average of $4 a gallon now to $2.66 a gallon. The economy would take off like a rocket. We would have unemployment under 5% inside of 2 years.
You can disagree with my interpretation, but the fact is that both Republican Presidents after Reagan implemented similar economic policies and the result in both cases was a recession and increased unemployment at the end of their Presidencies and very weak job and economic growth before that. Contrast that with the growth during the Presidency of Bill Clinton who implemented more traditionally Keynesian demand side policies.
In fact, you can go back before Clinton to the Presidencies of Truman, Eisenhower, Kennedy, Johnson and Nixon since every modern President before Reagan implemented traditional Keynesian economic policies. With minimal cyclical outliers, we had steady growth during the Truman-Nixon years, low deficits and low unemployment.
The one instance that supply siders can point to where it appears that Supply Side economics worked has an alternate explanation that, given that the two other supply side administrations failed to grow the economy, is much more plausible.
Tim Pawlenty suggested that he had a plan to grow the economy by 5% using supply side economics. The problem for him is that in the 12 years of supply side economics after Reagain (4 years of George H. W. Bush and 8 years of George W. Bush) only three of those twelve years featured growth at or above 5%. If you want steady economic growth over 5%, supply side economics cannot get you there.
There is not a single person running for the Republican nomination for President that has an alternative idea for how to run the economy. All of the candidates propose one variation or another of supply side economics featuring lower taxes. One question I would love to see a debate moderator ask some of these candidates is, “If supply side economics featuring lower taxes do not work, let's make that assumption, what is your plan B for growing the economy?” Of course we would get some pithy remark that would allow them to dodge the question, but just to see the expression on their faces for a moment or two would be priceless.
Supply side economics do not work. They have never worked. I only wonder how long it will take before Republicans and other conservatives begin to realize this.