At the end of July, the Washington Post published an editorial about the economic recovery that spoke volumes. Recognizing that the recovery could no longer be denied, the editorial writer attributed it to "Reagan's unintentionally Keynesian policy of large deficits."
Think about that for a second. The Post has been shouting bloody murder about federal budget deficits since Reagan took office. That, of course, enabled the paper's editors to call for tax increases under color of sound principle and fiscal conservatism. Now they were attributing the recovery to deficits.
Why were the deficits so terrible, in the Post's earlier view? Well, you see, deficits raise interest rates, for one thing, and high interest rates cause a strong dollar, because foreigners will exchange their savings for our inviting T-bills. (In passing, let us note the absurdity of that whole argument, that big deficits cause strong currencies. Does C. Fred Bergsten, the Carter administration Treasury official who is a great promoter of this brand of lunacy, really think that François Mitterrand could restore the French franc by increasing government spending and hence deficits?)
So anyway, deficits cause strong currencies, which do what? Hurt exports and the economy generally. So there you have it. Deficits can be used to apportion blame (economic slowdown, domestic-industry hurt) or praise (Keynesian recovery), depending on which way you want the argument to come out. But my point here is not simply to draw attention to liberal inconsistencies. Of far greater interest is the underlying liberal consistency.
As we have seen, the Post (and numerous other journals, of course) has used deficits to argue for tax increases. So why would it now risk weakening this argument by attributing the recovery to the self-same deficits? Because the time was not right to make one more pitch for a tax increase. At the end of July, Congress was just setting off for a five-week recess, and there was a general consensus in Washington that presidential politics would preclude another tax increase in the near future.
At the same time, however, it was a propitious moment to take care of another pressing problem. With the recovery at hand, there was the worrying possibility that Reagan supporters would begin pushing the argument that supply-side economics had worked after all. And that is anathema to any self-respecting liberal.
Only two days after the Post editorial, as it happened, I noticed a revealing comment by Peter Passell in the New York Times Book Review. Passell is a New York Times editorial writer, a man of the left, and the author of an untold quantity of misleading analysis in that august newspaper. "A feeble recovery leaving 8 or 9 million people jobless," he assured the faithful, "isn't likely to rekindle faith in the rationalizations for greed known as supply side economics."
Now, I think we have known all along that media hostility to supply-side economics has derived from ideology, even though it has consistently masqueraded as pragmatism ("it won't work"). Here at last the pretense was abandoned, and Passell came right out and said it: supply-side is ideologically undesirable—it "rationalizes greed."
What does this mean? The crucial point about supply-side theory is that it restores incentives to the realm of economic analysis. Incentives had been quietly, surreptitiously discarded in the Keynesian model that was embraced by Franklin D. Roosevelt and dominated policymaking for three decades. The Keynesian model transformed the economy into a system of pipes, ducts, canals, sluices, and locks. From a central command post, aggregates of "liquidity" could be transferred about from one spot to another, so as to maintain "equilibrium." No incentives in that system!
Supply-siders came along and said that if tax rates are too high, people will reduce their work effort. To leftists (liberals, as we say in America), this is an atrocious heresy. People are not willing to work for the collective, supply-siders were saying. They work for themselves and for their families, but not for people they do not know and will never meet, and certainly not for welfare programs that actually do more harm than good by undermining the incentives of the recipients.
Well, can you imagine what it was like for good liberals who had been toiling away in the vineyards of socialism to hear that kind of talk coming back all of a sudden—after all that smoke-screen about "compassion" and after carefully adopting a jargon that represented one's ideology as pragmatism (not to mention making sure that one's own income had been converted into lightly taxed, or even tax-sheltering, assets like houses)? Who were these nuts, anyway—Art Laffer, Jude Wanniski, and so on? Horrible! Incentives were supposed to have been banished for good, along with silver dollars and barbarous relics like gold.
So then Reagan was elected and actually put through a rather mild program of tax-rate reductions—over ferocious opposition. (Remember how tax cuts were said to be inflationary?) Then, two and a half years later, the damned thing looked like it might actually be working! Put yourself in the liberals' shoes. How do you respond to the emergency?
You could, of course, dust off the old Keynesian bible. And there the Lord doth say: big deficits are one way to get a stagnant economy going. And the Lord knoweth we have the deficits. Simple, then. The defunct economist lives! It wasn't supply-side at all—all that reprehensible delusion about people being so greedy as to want to keep their own money. Of course not. God forbid. It was nothing but a touch of the good old Keynesian stimulus.
Meanwhile, the Congress would be back in a few weeks. Then, and not before, it would be time to remind them to raise taxes—to get rid of that horrible recovery, I mean deficits.
Tom Bethell is a free-lance writer, a contributing editor of the Washington Monthly, and a columnist for National Review.
This article originally appeared in print under the headline "Viewpoint: A Liberal Pickle".