H/T Mark Smither

My liberal friend Mark pointed me to an article in the Financial Times entitled “The political genius of supply-side economics” by FT economics commentator Martin Wolf.  Wolf essentially argues that supply-side policies of cutting marginal tax rates are simply a political strategy to make deficit spending easier to sell to the American people.

I’m throwing the flag on this one.

My response to Mr. Wolf’s article (in the form of a comment on the FT web site) was as follows:

It strikes me as quite dishonest to intentionally conflate over-spending with taxation.  One would think that a discussion of whether tax cuts are good policy would at least mention the fact that major tax rate cuts generally result (at least in the US) in the short/medium term in MORE net revenue to the government due to increased economic activity.  Supporters of high taxes always predict that a tax rate cut will slash actual tax payments because they (ridiculously) assume that people’s behavior doesn’t change with changes in tax rates.

[A couple of pieces of intellectual ammunition:

http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm
http://www.heritage.org/Research/Reports/2007/01/Ten-Myths-About-the-Bush-Tax-Cuts
And the president’s own economic adviser wrote a paper arguing that “tax increases are highly contractionary”]

It’s also dishonest of Wolf to say that supply-side is about a free lunch.  There is nothing inherent in supply-side theory regarding big spending or deficit spending.  Over-spending is a separate issue, and a huge problem.  But budget deficits cannot be properly laid at the feet of tax cuts.

Furthermore, people like Mr. Wolf seem to operate under the assumption that the government has the first claim on our earnings rather than we, the citizens, owning the fruits of our labor. 

“Starve the Beast” has not worked because Republicans have been horrendous when it comes to spending, particularly in the past decade.  That said, the Democrats in the last 18 months are making the GOP look like pikers.  Just because trying to cut taxes hasn’t worked well doesn’t mean it’s an unworkable strategy.  I certainly  haven’t seen a better tactic, anyway, as part of a strategy to reduce the size, cost, an intrusiveness of government.

What’s Mr. Wolf’s solution?  Tax more so government gets ever bigger and more expensive?

I think the answer is yes.  Overall, this note by Mr. Wolf is simply politics masquerading as economics and its dishonesty is rather reprehensible, though Wolf still hasn’t reached the depths of Paul Krugman.