There is a policy lag that must be taken into account when assessing the effects of an administrations actions. From that standpoint, the '80s recession belongs to Carter, if it belongs to anyone, and therefore cannot fairly be used against Reagan to judge the success of his policies, which were not even in place for most of it. Friedman estimates an 18 month average for policy lag.
I cannot judge the usability of the data beyond cautioning that adjustment for historical anomalies must be made.
There is a simple, logical argument for supply side: if you want more of something, subsidize it; if less, tax it, or raise taxes. This is the same principal which says that you can maximize aggregate return by cutting prices, because it increases demand. Of course, one has to seek the equilibrium price, but it is clear, in principle, that if you sell twice as many Snickers at fifty cents than you do at seventy five, you come out ahead at the lower price. Cut marginal income tax rates, and you will have more people seeking to improve their positions, and therefore greater productivity. Cut income tax rates generally, and you will have more jobs, all things being equal. Cut capital gains, and there will be more stock transactions. Etc. There is some historical verification, the most famous being the Kennedy tax cuts, which had a stimulative effect and increased revenue, but I do not have a more thorough empirical analysis at my fingertips. Maybe I will look later.
No one credits Pearl Harbor with helping the economy. But mobilization has stimulative effect, to a greater or lesser degree, because of the sharp increase in aggregate demand. The stimulative effects of current mobilizations were noted by members of the current Administration, in fact. All anyone has said is that the immediate effects of the attacks delayed economic recovery. |
