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The Economic Far Right & the G.O.P.

Posted By Barry Ritholtz On October 9, 2007 @ 4:18 pm In Economy,Politics,Psychology,Taxes and Policy | Comments Disabled

Interesting Op-Ed by Jonathan Chait in today’s NYT: Captives of the Supply Side [1]. Chait makes the interesting argument that as far as the GOP is concerned, it is not the religious right, but the economic far right that calls the shots:

"Last year, Senator John McCain earned widespread ridicule for
publicly embracing Jerry Falwell, whom he had once described as “evil.”
But an equally breathtaking turnabout occurred earlier in the year,
when Mr. McCain embraced the Bush tax cuts he had once denounced as an
unaffordable giveaway to the rich. In an interview with National
Review, Mr. McCain justified his reversal by saying, “Tax cuts,
starting with Kennedy, as we all know, increase revenues.” It was the
political equivalent of Galileo conceding that the Sun does indeed
revolve around the Earth."

That’s a pretty fair assessment of the Supply Side camp in the Republican party.  Enthralling my pal Larry, they dominate the economic debate to the point where there is no debate:

"Mr. McCain is not alone. Every major Republican contender — Rudy
Giuliani, Fred Thompson, Mitt Romney — has said that the Bush tax cuts
have caused government revenues to rise. No prominent Republican
office-seeker dare challenge this dogma for fear of offending the
economic far right.

Yet there is no more debate about this question among economists
than there is debate about the existence of evolution among biologists.
Most economists believe that it is theoretically possible for tax rates
to be high enough that a reduction in rates could actually produce more
revenues. But I do not know of any tenured economist in the United
States who believes this is true of the Bush tax cut

Granted, economic growth sometimes causes revenues to rise faster
than expected after a tax cut, as has happened since the 2003 tax cut.
But sometimes revenues fall faster than expected after a tax cut, as
they did after the 2001 tax cut. And sometimes revenues rise faster
than expected after a tax increase, as they did after the 1993 Clinton
tax increase.

Even very conservative economists who have worked for the Bush
administration — including Greg Mankiw, a former chairman of the
Council of Economic Advisers under President Bush who is now an adviser
to Mr. Romney — have publicly stated that today’s tax revenues would be
even higher were it not for the Bush tax cuts
."  (emphasis added)

That’s a fascinating observation. Apparently, this belief is heresy:

"No Republican candidate can risk committing heresy by acknowledging
this bipartisan consensus among economists. On social issues, however,
Republicans actually tolerate diversity of thought. For example, Mr.
McCain, Mr. Giuliani and Mr. Thompson all oppose, on federalist
grounds, a constitutional amendment to ban gay marriage."

Meanwhile, lots of credible economists are quite critical of the Supply Side [2] argument (as well as some amusing goofs [3]) — including Greg Mankiw [4].

And as we’ve long said here, the main credit for the current expansion
lies with the Fed’s Ultra-low rate cuts, and global growth — not
either the 2001 or 2003 tax cuts.

I am curious: is there a general consensus amongst readers as to whether or not Supply Side is legit or not?

What say ye?


Captives of the Supply Side [1]
Jonathan Chait
NYT, October 9, 2007

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2007/10/the-economic-far-right-the-gop/

URLs in this post:

[1] Captives of the Supply Side: http://www.nytimes.com/2007/10/09/opinion/09chait.html

[2] Supply Side: http://finance.yahoo.com/expert/article/economist/4065

[3] amusing goofs: http://www.buzzflash.com/contributors/03/09/17_franken.html

[4] Greg Mankiw: http://gregmankiw.blogspot.com/2006/12/supply-side-economics.html

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