Reaganomics

I've always wondered: if you assembled a hundred respected economists in a room, and asked them whether trickle-down economics worked, what would they say? Unsurprisingly, this turns out to be a silly question. Brad DeLong (who likes to do the economics at Berkeley) weighs in. Briefly, Bruce Bartlett recently wrote a piece on the subject for the NYTimes, and it's sparked a debate about how supply-side economics was taught in the 70's and 80's. The occasion for this discussion, I suspect, has less to do with the current political climate, than with a general re-evaluation following Milton Friedman's death last year. But the punch is that most economists, of any stripe, seem to agree that some supply side adjustments are valuable, like lowering high marginal tax rates. But apparently, this limited, if hard-fought discussion within economics has metastasized, so that conservatives now believe any reduction in tax rates of any kind will spur economic growth.

The other side of the coin is fiscal policy -- the belief that monetary adjustments (read the Fed's interest-rate jiggering) could affect factors from pricing to employment. As with the supply-side school of thought, this policy could be taken too far, and is often credited with the "stagflation" of the 1970's, when attempts to adjust production through fiscal policy resulted in an increase in inflation without an increase in economic growth. In reading DeLong's post, along with the comments posted by various economists, it seems that the consensus is both policies should be applied, in moderation. Supply-side adjustments are useful in spurring growth when inflation seems to be looming, but it takes a long time to kick in and should be targeted to specific taxes; monetary adjustments are faster-acting but cannot stem inflation on their own. Believe it or not, the solution seems to be careful adjustment of policy to the economic climate. Shocker.

I guess it's no surprise that these discussions don't appear on Meet the Press, but it sure is nice when the experts collect to hash something out.