I’ve just started reading Jonathan Chait’s new book The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics.
One of the more remarkable developments in the last twenty-five years of American politics is the takeover of the Republican party by the lunacy of supply-side economics. Chait explains how a view of the economic world that is absurd on its face (that the behavior of a large, complex economy can be predicted solely on the basis of marginal tax rates) and has been proven to be false over and over again (for example, the uniform, and uniformly wrong, predictions by supply-siders that economic disaster would ensue from Clinton’s economic policies) has nonetheless achieved gospel status among prominent politicians and opinionmakers.
Much of what Chait has to say will sound familiar to people who follow the antics of creationists:
Finally, supply-siders benefited from the fact that few people understand economics. Utterly deluded though they may be, they express themselves in economic jargon that few Americans, even intellectuals, can judge. Debates between supply-siders and advocates of mainstream economics appear, to outsiders, like technical disputes between experts with equally valid points of view. Crackpot economic theories thus enjoy an inherent advantage over other sorts of crackpot theories because it’s harder for ordinary people (or even elites) to recognize the lunacy.
Sound familiar? How about this:
Like most crank doctrines, supply-side economics has at its core a central insight that does have a ring of plausibility. The government can’t simply raise tax rates as high as it wants without some adverse consequences. And there have been periods in American history when, nearly any contemporary economist would agree, top tax rates were too high, such as the several decades after World War II. And there are justifiable conservative arguments to be made on behalf of reducing tax rates and government spending. But what sets the supply-siders apart from sensible economists is their sheer monomania. Indeed, the original supply-siders believed — and many of them, including their disciples at places like the Wall Street Journal editorial page, continue to believe — that they have not merely altered established economic thinking but completely overturned it.
So if supply-side economics did not come out of the economics profession, where did it originate? It emerged from the writings and discussions of Laffer, Wanniski, and the late Wall Street Journal editorial page editor Robert Bartley. Those three did not do the kinds of things that real economists do, such as write academic papers or submit their findings to peer review. Instead they wrote editorials and columns or sometimes longer articles for magazines like Irving Kristol’s The Public Interest. Now, I’m a journalist myself, and obviously I see nothing wrong with journalists writing about economic policy. But Wanniski, Bartley, and their crowd were not merely commenting on economic policy; they were claiming to have disproven the collective wisdom of the economics establishment.
The sole true academic economist among the supply-siders is one Robert Mundell of Columbia. Mundell is undoubtedly brilliant; he recently won a Nobel Prize for his work on international currency exchanges in the 1960′s. But he essentially withdrew from the normal academic channels before he began championing supply-side theory. As Krugman noted:
The fact is that around 1970 Mundell veered off from conventionality in a number of ways…Mundell dropped out of the usual academic round of conferences and seminars, and began holding his own conferences in a crumbling, half-habitable villa he owned near Siena. Most important, Mundell completely abandoned his former academic intellectual style; since 1970 he has written little, and what he has written tends to be marked by extravagant rhetoric, accusing his fellow economists of “sheer quackery” in espousing ideas that he himself had held when younger.
The supply-siders allied with Mundell saw his renegade status not as a troubling sign of instability but as a mark of genius. “At a later White House meeting. Mundell tried to explain his policy mix to establishment economists, as he had earlier at a 1971 conference of economists in Bologna,” Bartley later wrote. “But the ideas he expressed, recounted in this volume, were so out of the mainstream not even the most eminent economists could follow them.” One suspects the eminent economists actually could follow Mundell’s ideas; they simply didn’t accept them, though this possibility seems not to have occurred to Bartley. For supply-siders, the hostility of authorities merely deepens their own sense of certainty. While most people would regard with some distrust a theory that has been rejected by the experts but embraced by politicians, the supply-siders consider it a badge of honor. As Bartley boasted, “Economists still ridicule the Laffer Curve, but policymakers pay it careful heed.”
Definitely sounds familiar.