The boldest, most different set of ideas we have had since the New Deal." That was Rep. Morris Udall's appraisal the night President Reagan proclaimed his economic strategy to a joint session of Congress, and then the thoughtful liberal Democrat from Arizona fell silent.
Liberal Democrats are not accustomed to watching express trains pass them by, and now it appears that an express train filled with new economic ideas has left them forlorn on a crumbling railway platform in Podunk. Some, like the Hon. Udall, blink and wonder what will happen to them. Others, like the Hon. Ron Dellums, leap and stomp and issue quaint, 1960s alarms on behalf of the Popular Front for the Liberation of Oakland. For nearly half a century their gospel of taxing and taxing, spending and spending, has been the gospel of the enlightened, the compassionate and the politically invincible. Now it is the gospel of the bandrupt, the fuddy-duddy and -- if the 1980 elections are a portent -- the soon-to-be-retired. How sad to think that Udall and all this ritualistic liberals may soon hear themselves described in the same songs of obloquy heretofore reserved for the reactionaries Hoover, Coolidge and Harding.
Last week President Reagan did indeed outline the most audacious economic demarche since the New Deal, and the liberal Democrats were left looking like the vernerable Carter Glass in 1934. What Reagan is urging upon Congress is supply-side economics, an economic doctrine whose rapid ascendancy into public policy debates in itself suggests the obsolescence of our reigning doctrines. Given our present low rate of productivity plus high unemployment and high-inflation, the supply-side is not easy to dismiss. Economist Norman True was quoted last week as saying that the rise of supply-side economics is "one of the most dramatic revolutionary developments I've ever seen." As an editor whose sober moments are spent with public policy experts, I can confirm Ture insight. Supply-side economics has swept through the public policy community as swiftly and perturbingly as Luther's complaints swept through old Rome. In recent months it has even gained adherents in Europe.
Yet it is still a minority view with the politicos, Democratic and Republican alike, none of whom spend as much time thinking as they do talking and pressing the flesh. Were it not for the genial warrior now residing at 1600 Pennsylvania Ave, the pols would still be flummoxing with their old orthodoxies: the Democrats with Keynesianism, the Republicans with balanced budgets. Stagflation would brood over us unruffled and impregnable. But Reagan is unique. He was attracted to public life by the ideas, not by the glow of the career. He has publicized ideas from outside office for more years than he has served in office, and over the past year or so a serious interst in the views of Jude Wanniski and ArthurLaffer has made him a convinced supply-sider. According to my spies, the White House adviser chiefly reponsible for the president's economic strategy is the president himself. Admittedly, it is hard to imagine him sitting over mounds of economic data, calculator in hand, but it is not hard to imagine Ronald Reagan getting an idea in his head and thumping for it.
Supply-side economics comports neatly with Reagan's optomistic view of economic man. He believes that the average American, freed from goverment taxation and regulation, will work harder and produce more. Under Keynesian orthodoxy it was believed that the economy was driven by aggregate demand. Supply-siders believe it is driven by production. Thus they favor cutting taxes that hold back production.
Now it is at just this point that the critics of supply-side economics and the critics of the Reagan strategy run off the road. They believe that tax cuts will increase comsuption, hence they envision more inflation. "I don't know why anybody should believe that a shift to personal consumption away from government programs reduces inflation," George Perry of the Brookings Institution lamented last week. But Perry has forgotten one of Lord Keynes' sounder perceptions, to wit: as income increases, consumption as a proportion of income falls off. Supply-siders agree. The rich put more money into savings, thus allowing lower interest rates. They put more money into investment, thus encouraging higher rates of productivity. The result is a body blow to inflation. That is why it is important to cut taxes for the rich as well as for the poor.
The supply-siders do not pit the poor against the rich, nor do they raise up the rich as necessarily superior men. Their view is less divisive and more dignified. They believe that tax cuts for the rich will mean more money for capital formation and growth.
Reagan pledges to increase employment, efficiency and vigor in the economy while cutting inflation. His strategy calls for tax cuts, moderate monetary growth and a $41 billion cut in federal expenditures. This is not simply supply-side economics, for it makes use of traditional conservative economics and sensible demand management. Last week's speech outlined not only the boldest economic strategy since the New Deal but also the most comprehensive approach to the economy ever. Boldness -- that is what liberals have always admired in their presidents. Well, here is boldness and respect for convention too. How can any good liberal shrink from supporting our president?