Supply-Side Economics, Theory and Results: An Assessment of the Amercian Experience in the 1980s
Paul Craig Roberts
Republished from January 1989
THE INSTITUTE FOR POLITICAL ECONOMY
Printed in the United States
Permission to quote from or to reproduce materials in this publication is granted when
due acknowledgement is made
Table of Contents
Chapter I -- Introduction 1
Chapter II -Theory of Supply-Side Economics 4
Chapter III -- Some Empirical Studies of the Relative
Price Effects of Fiscal Policy 9
Chapter IV -- Implementation and Results of Supply-Side
Economics in the United States 15
Chapter V -- Conclusion 33
References 37
About the Author 40
I. Introduction
When John F. Kennedy was elected President of the United States in 1960, Keynesian demand management entered its American heyday. Keynesianism had been entrenched in the universities for a decade or more, and a generation of journalists and civil servants had been inculcated in its principles. There were few critics, and no one paid them any attention. Demand management had free reign and rode off into stagflation and political destruction during the administration of President Jimmy Carter.
Two decades later when Ronald Reagan was elected President, another fiscal revolution occurred, but this time few people and prac tically no academics were familiar with the supply-side principles at its core. It was a policy born in the congressional budget process and frustrations with stagflation and worsening trade-offs between inflation and unemployment. In the autumn of 1978 the Democratic Congress passed what was later known as Reaganomics -- tax rate reductions combined with reductions in the growth of federal spending -- but the measure was killed by President Carter's announcement that he would veto the measure. Nevertheless, the Congress rejected the Carter Administration's tax reform legislation, designed to close "loopholes" without lowering tax rates, and cut the capital gains tax rate. The supply-side revolution had begun.
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