In his latest column for the New York Times, award-winning economist and influential liberal pundit Paul Krugman uses the latest example of supply-side economics' failure (this time in Kansas) as a jump-off point to talk about a larger problem: How the wealthy and powerful are able to protect certain ideas from real accountability because they redound to their benefit.
"Yes, the Kansas debacle shows that tax cuts don’t have magical powers, but we already knew that," Krugman writes. The "important lesson" readers should take away from the example is not that tax cuts are no panacea but about "the enduring power of bad ideas, as long as those ideas serve the interests of the right people."
Krugman notes that supply-side economics is a useful case-in-point to explain the broader phenomenon, mainly because the theory — at least in its most common, simplistic form — is so foolish that even very conservative economists, like Harvard's N. Gregory Mankiw, are willing to acknowledge it is the product of "charlatans and cranks."
"[I]t’s not as if supply-siders later redeemed themselves" after the huge deficits created by their policies under President Reagan, Krugman argues. "On the contrary," he writes, "they’ve been as ludicrously wrong in recent years as they were in the 1990s." He points to famed supply-sider Art Laffer's prediction in 2009 of skyrocketing interest rates and prices as proof.
So how to explain the supply-side theory's apparent immortality? Krugman points the finger at the wealthiest class, which he believes features more than a few conservatives who care more about lining their pockets than promoting effective and just public policy. He singles out ALEC for particular scorn, describing it as "a secretive group, financed by major corporations, that drafts model legislation for conservative state-level politicians."
It's through ALEC, Krugman writes, that the right-wing 1 percent are able to push their self-interest:
While ALEC supports big income-tax cuts, it calls for increases in the sales tax — which fall most heavily on lower-income households — and reductions in tax-based support for working households. So its agenda involves cutting taxes at the top while actually increasing taxes at the bottom, as well as cutting social services.
But how can you justify enriching the already wealthy while making life harder for those struggling to get by? The answer is, you need an economic theory claiming that such a policy is the key to prosperity for all. So supply-side economics fills a need backed by lots of money, and the fact that it keeps failing doesn’t matter.
And the Kansas debacle won’t matter either. Oh, it will briefly give states considering similar policies pause. But the effect won’t last long, because faith in tax-cut magic isn’t about evidence; it’s about finding reasons to give powerful interests what they want.