It Ain’t Voodoo Economics

We POSTMODERN CONSERVATIVES are justly proud not only of our philosophical, theological, and political literacy, but also of our economic literacy. So we can see, without being social or cultural libertarians (and while wanting, of course, to keep Locke at least somewhat in the Locke box), that there’s a lot of truth to SUPPLY-SIDE ECONOMICS. So the book we think the president, most of all, should have read during his summer vacation is Brian Domitrovic’s ECONOCLASTS: THE REBELS WHO SPARKED THE SUPPLY-SIDE REVOLUTION AND RESTORED ECONOMIC PROSPERITY, just published by ISI. Brian concludes by advising the president to follow the example not of FDR, whoses anti-Depression policies weren’t so successful, but of JFK, who most astutely judged with his own eyes what policies actually promote prosperity and growth (both are good things, if used well according to properly human purposes). Because the era of the Kennedys has come to an end, I want to praise at least some things about JFK and even RFK. They opposed, at least some of the time, the whiny and unempirical side of elitist, establishment liberalism. Here are some of Brian’s concluding words to our president:

What might history teach President Obama and the favorably inclined Congress he enjoys? First, it is time to understand what great Democrats achieved in the past. It is difficult to believe that had FDR honored George Washington’s precedent and not sought a third term, he would be regarded today as anything short of a grand failure. The recession that started right after FDR’s reelection in 1936 canceled all gains made by the New Deal and perpetuated the Great Depression until the clouds of war came. For all the make-work programs of the Works Progress Administration and the crusades against big business, the New Deal in its classic period—1933-39—did nothing to restore prosperity.

JFK, in contrast, took all the right advice and knew when and how to defy it. His ambition was such that he was going to have spectacular growth on his watch, no matter whom he had to cut deals with—even if that meant the Chamber of Commerce and Ford Motor, as opposed to the supporters of the neoclassical synthesis who made up his Council of Economics Advisors. JFK was clever enough to assign credit for his policy mix to his assistants, but the documentary record is clear that his CEA got mugged by reality and overruled by its president.

JFK’s is the result Obama should aspire to, not FDR’s. His plan of action should include pursuing the following policy set:

1. Endorsing the stable price/low tax consensus endorsed by Robert Lucas and so many others. In practice, this would mean perpetuating the 2003 tax cuts beyond 2010.

2. Allowing the Federal Reserve to restore confidence in the dollar (and thus raise interest rates and reestablish the discipline of the Taylor rule) by cutting taxes, perhaps the corporate rate.

3. Curtailing the unfunded liabilities of Social Security and Medicare, which imply huge future increases in taxation. This is easier than it sounds, in that any individual who is part of Generation X or younger would gladly take sixty-seven cents on the dollar of promised Social Security benefits.

4. Spending on pet programs as a new president might wish, but achieving balance by means of cutting spending from the pet Bush or Republican earmark programs, of which there is hundreds of billions of dollars’ worth.

5. Making a serious effort toward an international concord on fixed exchange rates and free trade.

As for the banking system, it would right itself on account of the real lending opportunities that would be unleashed by the above reforms.