Well, well. Another Reagan Supply-Side rat abandons ship (30 minutes). I guess he can't even stomach his own economic theory any more. His supply side snake oil just left millions of Americans in poverty, sickness, and unendiing debt. What did former Reagan Domestice Policy Advisor Bruce Barlett think would happen? Today's economic conditions are the direct result of the logical concluson of Reaganomics. Now that the damage is done, Barlett is bewildered of how America became unindustrialized, in debt, ruled by Plutocrats, and engaged in unlimited wars. How did he think thirty years of corporate mergers would end--some market ecnomy free of monopolies? Was financial deregulaton to end in law and order? Did he think these new billionaires would invest in American instead of suberting democracy?

Republican "Supply-side economics” ideologues claimed that "getting gov'mnt off your backs and let you get going" would create fantastic wealth in which the newly collected tax revenue alone would pay of the National Debt (Laffer Curve) which in 1981 was a trillion dollars. That was the Reagan promise of economic growth, but the economic reality was corporate R&D investment during the 1980s went to near ZERO because corporations were more interested in the high finance of mergers, acquisitions, and speculation in commodities and currencies. We saw the Mitt Romney Bain Capital pirate equity asset stripping business model--called “Leveraged Buy Out Companies” (LBO) during the eighties--roll in like a plague on unsuspecting profitable companies. Even dentists were setting up Savings and Loans banks in post offices boxes! It was an era of high finance “smoke and mirrors” never seen before in American history--at least since 1929 stock market. From the very beginning of Reagan’s administration critics' charged that the Reagan monetarists were building an economy of chronic unemployment, rampant financial fraud, and massive government debt. Reagan’s economic plan was so laughable that even Reagan’s opponent George H. Bush called it “Voodoo Economics.” Professional economist knew it was a scam. I lived through Reagan’s two terms and it was an unbelievable disaster that has consequences lasting even to this day.

Reagan’s Supply Side economic theory is an unbelievably stupid economic theory. John Maynard Keynes' economic theory has been described as "Demand economics" since tax money is injected into the economy to increase aggregate demand and add velocity to money. We have historical proof that it worked to bring America out of the 1929 Republican Depression. Contrast Keynesian economic success with the full-blown institution of "Supply-Side Economics" in Chile. see “Milton Friedman and the Economics of Empire: The Road from Serfdom” by Greg Grandin. The Reagan and Bush Sr. reign from 1981 to 1993 resulted in three rolling recessions. I witnessed all three of these recessions.

The Laughable Curve

Even after 12 years of Reaganomics, it was still an economic disaster. The 1981 Reagan tax cuts led to large fiscal deficits and current account deficits, an episode of "twin deficits". By 1986 the budget deficit was as high as 5% of GDP and government revenues had fallen by over 2% of GDP since the introduction of the 1981 tax cuts. The fiscal problem became so bad that Reagan was forced to reverse some of his tax cuts, first in 1982, then in 1984, and then again several times more in his second administration. Here is a graph of federal expenditures in red and federal receipts in blue from 1980 to 1989.

The economic boom of the 90s could have happened in the 80s, but supply-economics and Milton’s tight monetarist policies made investment difficult—even pro-Reagan auto dealers began to complain of the tight money policies. Bruce Bartlett went to work for U.S. Congressman Jack Kemp (R-New York) in 1977 as staff economist. Bartlett was key in drafting the Kemp-Roth tax bill, which ultimately formed the basis of Ronald Reagan's 1981 tax cut. Bartlett's wrote, "Reaganomics: Supply-Side Economics in Action" in 1981. What little non-military investment that did occur was in car rental businesses because the new capital depreciation tax laws rewritten in the Kemp-Roth new “Ten-Five-Three” depreciation policy allowed vehicles to be depreciated at a faster rate for tax refunds. In some instances the tax credits generated tax subsidies so that sum of credits and allowable depreciation exceeded net income! Many auto rental companies made more money in tax credit than actually renting vehicles. Other investments went to the least useful industries such as equipment leasing, hotels, shopping centers, restaurants, and Amusement parks—industries that paid minimum wage. Much of the tax breaks of the Reagan supply-side era went to takeover efforts thereby reducing competition, or they exported cash flow to foreign ventures, or simply enlarged dividend payments to stockholders. Tax shelters were more attractive than productive investment. The industrial belt ripe for new investment dollars instead became the Rust Belt.

So instead of the tax cuts stimulating investment and creating jobs, it destroyed jobs on a massive scale: Supply-siders were not just wrong, but brought about the very OPPOSITE of what they said their tax cuts would bring about. The federal debt tripled (from $930 billion on December 31, 1981 to $2.6 trillion on September 30, 1988). Here is a graph of gross federal debt going back to 1940, again from the St. Louis Federal Reserve. The U.S. went from being the world's largest creditor nation to becoming the world's largest debtor nation during his second term. And Republicans worked hard to conceal these facts by counting the military as employed and not counting the cost of housing for inflation statistics. The “official” unemployment rate reached a peak of 10.8% in late 1982; however, the actual rate was more like 13%. The Reagan's administration added all the military into the 'employed' category, which drives down the 'unemployed' percentage. This was only one case in numerous attempts to redefine unemployment. Year after year after year the newscasts reported 10,000 laid off: 20,000, 50,000, 25,000, 13,000 as the mergers took their toll. At one point Ford announced a lay off 30,000 employees-- the total number of persons employed by Chrysler at that time! 80% of the tax saving when to the 1,700 largest American corporations that only generated 4% of all new employment opportunities. The Macro-Reaganomics disaster DELAYED the already government financed investment in cybernetics that exploded in the 90s. So we can give credit to Reagan’s policies for LEAVING the economic scene as much as we can credit Clinton’s policies for the 90s boom.

Then came 4 years under Bush Sr's. laissez-faire economics. By 1990-91 the reality of too low tax rates in face of rising spending and painful recession pushed the deficit to an average of 4.2% of GDP in those two years. Voodo economics was such a failure that then President Bush had to reverse his "Read My Lips: No New Taxes" promise and accept a tax increase.

And then there is the 5 years under Bush Jr's. Corporatism. Bush Jr. decided to try again this bankrupt intellectual idea claiming again that tax cuts would be self-financing. In 2000 the budget surplus was $236 b (2.4% of GDP)[/b] while by 2004 we had a budget deficit of $412b or 3.6% of GDP. This was a worsening of the fiscal balance of 6% of GDP in four years. What accounts for this worsening? Government revenues fell in those four years by 4.6% of GDP (from 20.9% in 2000 to 16.3% in 2004). In the same period government spending went up by 1.4% of GDP (from 18.4% to 19.8%). But almost all of the increase in spending is accounted by an increase in defense and homeland security spending.

Investors know the truth about monetarists and supply-siders: salvation for the supply-siders is by recession, unemployment, business bankruptcy, and protracted slow recovery. The investors were right to run for cover as the Bush II economic nightmare was about to begin.

• During the first three years of the Bush administration, more than 3 million jobs in the U.S. have disappeared. Bush promised 2.2 million jobs created between 2001 and 2004 as a direct consequence of passage of the $2.1 Trillion tax cuts for the rich!
• With Bush's tax cuts half of all income tax payers had their taxes cut by less than $100. On the other hand, those with annual incomes more than $1 million received an average tax cut of $105,636 from Bush.
• During 2003 the US economy needed to produce 150,000 jobs a month, or 1.8 million jobs for the period, just to stay even. Instead, it actually lost 360,000. That's in addition to the 1.8 million new workers entering the economy. For a total shortfall of more than 180,000 jobs a month.
• From 2001 through 2003 a total of 58.6 million workers in the US were laid off at some point and about 55 million rehired or were newly hired somewhere
• Corporate profits were up by 30% in the July-September 2003 period compared to the same period in 2002—the largest year over year growth in profits in 19 years and reaching an annual rate of more than $1 trillion dollars for the first time in history! Forecasts are for another 15% gain in profits in 2004. That's a 45% pay raise in just 2 years.
• Officially, the number of unemployed during the current Bush recession and jobless recovery that has followed has remained at any given time chronically at around 8 to 9 million. This does not count the so-called 'discouraged workers' leaving the workforce in hundreds of thousands every month, those 5 million employed involuntarily part-time, those involuntarily forced into retirement or those who have no jobs but claim when interviewed to be employed as 'consultants earning an occasional dollar here or there 'under the table'. All total, that brings the number of those out of work in 2007 to more than 15 million! The true unemployment rate rose to about 13%-14% as of early 2004.

Two generations of Americans have waited for Supply Side economics, Trickle down economics, Voodoo economics, NeoLiberal economics, free trade econmoics, and Laffer Curve to kick-in. In every case the result has been increased unemployment, increased child and elderly poverty, increased deficits, increased homelessness, increase trade deficits, and increase capital accumulation at the top 5% of the wealthiest Americans.

See Deja Vu Voodoo Economics...or Supply Side Voodoo Black Magic...by Nouriel Roubini

For more on Neoliberalism see Friedrich von Hayek Economic Hokum.