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Politics : Formerly About Advanced Micro Devices
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To: combjelly who wrote (336737)5/7/2007 11:40:44 PM
From: tejek   of 1576138
 
It pretty much summerizes my understanding of supply side economics. You know....the Reagan god as far as I can tell started this whole mess. Reagan fought the equal rights laws that had been passed prior to his presidency; he introduced these ridiculous tax cuts, running up the deficit; he stopped funding mental institutions forcing many of those people onto the streets of the country; aided and abetted Saddam and created the Contras in Nicaragua. This is an example of a great president? Not in my book.

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So why "voodoo" economics? There is some question about the magnitude of these effects, and the theory was way oversold at the time. Many "supply siders" argued that the incentive effects were so large that a reduction in tax rates would actually raise tax revenue, since the tax base would grow so much. There's no sign that this happened, and indeed most economists were pretty skeptical of this prediction at the time. Quite to the contrary, the budget deficits exploded in the 1980s after tax rates were cut by Reagan in 1981. The response of private savings and labor supply to the Reagan tax cuts was minimal: the labor supply did not increase and the effect on private savings was swamped by the reduction in public savings (the increase in the budget deficit). Since labor supply and savings increased only marginally, government revenues did not increase (relative to GDP) and the budget deficit became very large. The Laffer curve hypothesis was was flatly contradicted. Moreover, the 1980s tax cuts did not increase the rate of growth of GDP and productivity, nor the investment and savings rates. Note the following facts:
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