Supply-side economics – the idea that tax cuts pay for themselves by generating a wave of new spending and job creation – appears to be on its death bed. Not only did it fail to work in the Reagan administration, but its disastrous budgetary consequences may well spark the defeat of the conservative Republican governor of Kansas – Kansas! – this year.
But don’t declare victory just yet, economist Paul Krugman admonishes readers in his New York Times column today. Supply-side economics, which George H. W. Bush memorably derided as “voodoo economics” during his unsuccessful 1980 presidential campaign, may actually be poised for a comeback.
That’s not to say that decades of economic scholarship is about to be upended and supply-side economics will soon be demonstrated to work. Instead, voodoo economics could soon rear its head in the form of a magical type of math called dynamic scoring.
Dynamic scoring, Krugman notes, is wonkspeak for economic forecasting that assumes tax cuts will generate the economic stimulus their champions claim. The problem? Data confirm that voodoo economics is, well, voodoo. Supply-side tax cuts don’t generate the investment, productivity, employment, wage, or GDP gains their proponents assert. Meanwhile, Krugman points out, the Bill Clinton administration witnessed both tax increases and faster expansion in GDP, jobs, wages, and family earnings than occurred during the supply-side Ronald Reagan era.
But if Republicans win control of the Senate and thereby gain full control of Congress this year, there’s reason to believe that they could push the Congressional Budget Office to adopt dynamic scoring in its forecasts, effectively embedding supply-side economics' magical thinking in the nonpartisan office's work. Paul Ryan, Krugman observes, has suggested as much.
That means that when Ryan and congressional Republicans propose a budget dramatically cutting taxes, the CBO would have to suspend disbelief and assert that the tax cuts would unleash substantial economic gains. And then – voila! – Ryan and the GOP could wield the coveted CBO stamp of approval as evidence of their budget’s soundness.
Even former foot soldiers in the supply side revolution assail dynamic scoring as bunk.
“It is not about honest revenue-estimating,” former Reagan and Bush 41 official Bruce Bartlett wrote in the New York Times last year. “[I]t’s about using smoke and mirrors to institutionalize Republican ideology into the budget process."
What explains the “voodoo comeback,” then? The modern right, Krugman essentially argues, is plagued by epistemic closure, unmoved by evidence that contradicts its priors. What's more, conservatives' deficit hysteria is fundamentally at odds with supply-side economics, which experience shows leads to huge spikes in the budget deficit. Dynamic scoring, though, means never having to face inconvenient truths:
But facts won’t stop the voodoo comeback, for two main reasons.
First, voodoo economics has dominated the conservative movement for so long that it has become an inward-looking cult, whose members know what they know and are impervious to contrary evidence. Fifteen years ago leading Republicans may have been aware that the Clinton boom posed a problem for their ideology. Today someone like Senator Rand Paul can say: “When is the last time in our country we created millions of jobs? It was under Ronald Reagan.” Clinton who?
Second, the nature of the budget debate means that Republican leaders need to believe in the ways of magic. For years people like Mr. Ryan have posed as champions of fiscal discipline even while advocating huge tax cuts for wealthy individuals and corporations. They have also called for savage cuts in aid to the poor, but these have never been big enough to offset the revenue loss. So how can they make things add up?
Well, for years they have relied on magic asterisks — claims that they will make up for lost revenue by closing loopholes and slashing spending, details to follow. But this dodge has been losing effectiveness as the years go by and the specifics keep not coming. Inevitably, then, they’re feeling the pull of that old black magic — and if they take the Senate, they’ll be able to infuse voodoo into supposedly neutral analysis.