Book Review: Econoclasts

The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity


The subtitle tips the hand of Brian Domitrovic a bit, but the central idea is a good one: despite its importance in world economic history, the combination of policies that broke stagflation's back and spurred the economic expansion of the 1980's has not benefited from an academic history. Domitrovic sets out to write one; he succeeds in substantial part. At times lapsing into hagiographic hallucinations about Arthur Laffer and Robert Mundell, the book does an admirable job of sketching the underlying economic intuition, academic building blocks, and political barriers that lead to the "supply-side revolution." As for the hero-worship, many historians fall victim to their subjects. That weakness could be overlooked. It was the final dozen pages in which an academic history delved into policy suggestions for President Obama that the author's credibility was irretrievably shattered. (That said, some of the suggestions looked pretty reasonable.)


Some people still complain about "Reaganomics," "trickle-down economics," or "voodoo economics." The three are different, and Domitrovic does a good job of identifying the key policy planks for supply-siders: tight money and marginal tax cuts. He tends to brush off criticisms about inequality a bit too lightly. Economists are interested in inequality, just not as good at assessing it as efficiency. Citizens and humans are certainly interested in equality. Avoiding the trade-offs inherent in any economic policy, and in fact denying their very existence, makes the reader suspicious.


The personalities are captivating---almost as interesting as the theory and its effectiveness. Mundell and Laffer are just the starting point, each coming from the tail of the distribution. Jude Wanniski was a different duck. The beauty is that you get some super-straight-laced conservative types too boot: Robert Bartley, Paul Craig Roberts, even All-American Jack Kemp. Certainly it is easier to come off as smooth and cosmopolitan when you're being compared to Jimmy Carter. For what it's worth, Domitrovic seems to miss the point that Mundell won the Nobel for his contributions on international capital flows rather than domestic economic policy.


People recognize that the supply-side policies worked in the early 1980's. That leaves two questions for the future. First, will continual marginal rate cuts and tight money continue to work. Can marginal rate cuts yield more revenue increases, or do the budgetary problems that result from political inability to control spending finally outweigh the benefits? Second, what other implications do supply-side policies have? What costs does income inequality impose in the long run? How might the policy mix be adjusted to mitigate the undesired effects?


Takeaway: a nice idea about a really compelling economic policy shift, but not carried out as well as one would hope. Critical thinking is the pathway to credibility.