My doubts about the Reagan economic program began when I saw that, like other unfortunates before him, Mr. Reagan was bringing his economists to town. Harry Truman, many will recall, yearned for a one-armed economist who could not say, “On the other hand, Mr. President.” Mr. Reagan avoided that problem; his economists are not given to balanced judgments. But he has brought not one but two schools—or shoals—to the city. That was a cause for real pessimism.
There was, first, the supply-side school. A few weeks ago the American Heritage Dictionary, which is not related to the American Heritage Foundation, and to which I am an unpaid adviser, wrote me to get a definition of “supply-side economics.” I told them not to bother; by the time the new edition came out, no one would want to know.
Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows. Others have referred to it as the Willy Sutton syndrome. Republicans, like the late Mr. Sutton, always go where the money is.
But one should avoid metaphors, especially those involving horses. Let us take supply-side theory at its face value, however modest that may be. It holds that the work habits of the American people are tied irrevocably to their income, though in a curiously perverse way. The poor do not work because they have too much income; the rich do not work because they do not have enough income. You expand and revitalize the economy by giving the poor less, the rich more.
Specifically, the supply-side theory, as I’ve earlier noted, requires you to believe that businessmen and business executives, because of their tax bracket, are now idling away their time—in the forthright language of my Canadian youth, are buggering off. Tax reduction will put them back to work. And they will save and invest the income so released—even in Dallas and Palm Springs. I have a far better view of the American businessman: I judge him to be working very hard now, and I believe him to be decently ensconced in the American dream. Given more money, and with the help of his wife and family, he will spend and enjoy most of it.
Such is one school that Mr. Reagan brought to town. With it came the monetarists. Inflation, we all agree, is the most persistent disorder of the modern economy. The monetarists seek to control inflation by a rigorous control of the money supply. There is no magic or mystery here, as people are frequently told and some believe. You control the money supply by a strict control of bank lending, primarily through high interest rates.
Unlike some of my liberal colleagues, I believe that monetary policy will work against inflation, in its own grim fashion is …