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Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity
The definitive history of supply-side economics—the most consequential economic counterrevolution of the twentieth century—and an incredibly timely work that reveals the foundations of America’s prosperity at a time when those very foundations are under attack.
358 pages, Hardcover
First published August 1, 2009
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February 24, 2023
In his title to "Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity" Brian Domitrovic claims that supply-side economics “restored American prosperity.” Prosperity for whom? According to Congressional Budget Office numbers for after tax income, in 1980 the richest fifth of our country had eight times the income of the poorest fifth. By 1989 the ratio was more than twenty to one. According again to the CBO, the greatest increase in after tax income went to the best paid one percent of the United States. After tax income for the bottom 60% declined.
In the first chapter of Econoclasts Brian Domitrovic wrote, “The economic results that supply-siders foresaw at the time [the late 1970’s to 1980] did in fact come to pass.”
Not really. During his 1980 debate with President Carter Reagan, who had spent much of his political career condemning deficit spending, claimed that his economic policies would balance the budget by 1983 “If not sooner.”
According to data compiled by the Congressional Budget Office, the United States Treasury, and others, in 1980 the budget deficit was $74 billion. In 1983 it had grown to $208 billion.
By the time President Reagan left office the national debt had grown from approximately $907,701,000,000.00 to more precisely $2,602,337,712,041.16.
In Chapter Five Domitrovic wrote, “the inflation crisis was in full swing before the OPEC shock of late 1973…In the 12 months before the OPEC announcement consumer prices in the United States increased by 8 percent.”
In October the Organization of the Petroleum Exporting Countries announced that it was raising the price of its oil to punish the United States for helping Israel in the Yom Kipper War.
According to the Bureau of Labor Statistics, in October 1972 the inflation rate was 3.7%. The average for 1972 was 3.2% The average for 1973 was 4.4%. The average for 1974 was 11.0%.
Domitrovic sees the rise in the price of petroleum as a result of the stagflation of the 1970’s, because he wants to blame the government and Keynesian economics. Let’s see which came first.
According to the Consumer Price Index (CPI-U) as presented by the Bureau of Labor Statistics, in 1972 the price of a barrel of petroleum was $3.60. In 1973 it was 4.75. In 1974 it was $9.35.
In 1972 the inflation rate was 3.2%. In 1973 it was 6.2%. In 1974 it was 11.0%.
In 1972 the unemployment rate was 5.2%. In 1973 it was 4.9%. In 1974 it was 7.2%.
When we keep in mind that the OPEC Oil Embargo did not begin until October 1973, it should be clear that the increase in the price of oil preceded the increase in inflation and unemployment. The rise in the price of petroleum was not a result of the stagflation; it was the cause.
Republicans like to blame Keynesian economic policies for the stagflation of the 1970’s. For the four decades from the inauguration of President Roosevelt in 1933 to 1973, Keynesian policies resulted in reasonably steady job growth, growth in the per capita gross domestic product (GDP), and milder recessions. Republicans never liked Keynesian policies because they shifted wealth, power, and prestige from the business community to the government.
Republicans do not want blame the increase in the price of petroleum that followed the OPEC Oil Embargo, and the Iranian Revolution of 1979 for the stagflation because they do not want to acknowledge that foreigners they dislike had considerable control over the U.S. economy.
Keynesian economic policies were designed to fight the Great Depression. During the 1930’s the problem was not inflation, but deflation. Moreover, Keynesian economic policies were not designed to respond to a shortage in a natural resource essential to the U.S. economy.
The legacy of supply side economics has not been a restoration of the broadly based prosperity Americans enjoyed from the end of the Second World War to the inflationary recession of 1974. The legacy has been chronic deficits, a growing national debt, and economic inequality as great as the United States experienced right before the Stock Market Crash of 1929.
According to date compiled by the United States Treasury and others, at the end of the Second World War in 1945 the national debt as a percentage of Gross Domestic Product was 114%. By the end of the administration of President Carter in 1980 this had declined to 32%.
According to the Statistical Data Section of the International Revenue Service, during this time the top tax rate was as high as 94%, and never got below 70%. During the Reagan administration the top tax rate declined to 28%.
At the end of the Reagan administration the national debt as a percentage of GDP had grown to 50%. Four years later, when President George H.W. Bush left office it had grown to 61%. It declined briefly during the Clinton administration, and it was 129% when Trump left office in 2021.
From 1945 to 1980 national debt as a percentage of GDP continued to decline during the wars in Korea and Vietnam.
According to the World Bank, during the Reagan administration military spending increased from $143.69 billion, during the last year of the Carter administration in 1980 to $325.03 billion during the last full year of the Reagan administration.
This was unnecessary and provocative. The United States was at peace. The Soviet Union was losing its war in Afghanistan. The Soviet Union was collapsing from within. It was dangerous to provoke the leaders of the Soviet Union with a nuclear arms race when they felt their country, and hence their power, disintegrating.
During the Carter administration there was a six month recession. Unemployment reached 7.8%. During the Reagan administration there was a sixteen month recession. Unemployment reached 10.8%.
https://en.wikipedia.org/wiki/List_of...
An average of 2,600,000 jobs were created every year during the Carter administration. During the Reagan administration this declined to an average of 2,000,000 jobs created every year.
http://www.middleclassparc.com/jobs.html
The rise in inflation that followed the Iranian Revolution of 1979, and which subsided after 1982 was caused by fluctuations in the world price of petroleum over which neither President Carter nor President Reagan had much control.
If you want to learn what really happened during the Reagan administration, do not read Econoclasts. Read "The Triumph of Politics: How the Reagan Revolution Failed," by David A. Stockman.
Stockman was Reagan’s Director of the Office of Management and Budget from 1981 to 1985. Stockman makes it clear that, contrary to what Ronald Reagan claimed during the 1980 presidential campaign, it never was possible to cut taxes, raise military spending and balance the budget without making cuts in domestic spending the vast majority of Americans would have opposed, including a large minority of Republican voters. Farm and business subsidies would need to be completely eliminated. Social Security and Medicare would need to be substantially reduced.
Stockman ended his book by writing, “we’re spending 24 percent of GNP, compared to raising only 19 percent of GNP in taxes…The Republican Party should not have told the American electorate in 1984 that we don’t have to raise taxes. It wasn’t true.”
.
In the first chapter of Econoclasts Brian Domitrovic wrote, “The economic results that supply-siders foresaw at the time [the late 1970’s to 1980] did in fact come to pass.”
Not really. During his 1980 debate with President Carter Reagan, who had spent much of his political career condemning deficit spending, claimed that his economic policies would balance the budget by 1983 “If not sooner.”
According to data compiled by the Congressional Budget Office, the United States Treasury, and others, in 1980 the budget deficit was $74 billion. In 1983 it had grown to $208 billion.
By the time President Reagan left office the national debt had grown from approximately $907,701,000,000.00 to more precisely $2,602,337,712,041.16.
In Chapter Five Domitrovic wrote, “the inflation crisis was in full swing before the OPEC shock of late 1973…In the 12 months before the OPEC announcement consumer prices in the United States increased by 8 percent.”
In October the Organization of the Petroleum Exporting Countries announced that it was raising the price of its oil to punish the United States for helping Israel in the Yom Kipper War.
According to the Bureau of Labor Statistics, in October 1972 the inflation rate was 3.7%. The average for 1972 was 3.2% The average for 1973 was 4.4%. The average for 1974 was 11.0%.
Domitrovic sees the rise in the price of petroleum as a result of the stagflation of the 1970’s, because he wants to blame the government and Keynesian economics. Let’s see which came first.
According to the Consumer Price Index (CPI-U) as presented by the Bureau of Labor Statistics, in 1972 the price of a barrel of petroleum was $3.60. In 1973 it was 4.75. In 1974 it was $9.35.
In 1972 the inflation rate was 3.2%. In 1973 it was 6.2%. In 1974 it was 11.0%.
In 1972 the unemployment rate was 5.2%. In 1973 it was 4.9%. In 1974 it was 7.2%.
When we keep in mind that the OPEC Oil Embargo did not begin until October 1973, it should be clear that the increase in the price of oil preceded the increase in inflation and unemployment. The rise in the price of petroleum was not a result of the stagflation; it was the cause.
Republicans like to blame Keynesian economic policies for the stagflation of the 1970’s. For the four decades from the inauguration of President Roosevelt in 1933 to 1973, Keynesian policies resulted in reasonably steady job growth, growth in the per capita gross domestic product (GDP), and milder recessions. Republicans never liked Keynesian policies because they shifted wealth, power, and prestige from the business community to the government.
Republicans do not want blame the increase in the price of petroleum that followed the OPEC Oil Embargo, and the Iranian Revolution of 1979 for the stagflation because they do not want to acknowledge that foreigners they dislike had considerable control over the U.S. economy.
Keynesian economic policies were designed to fight the Great Depression. During the 1930’s the problem was not inflation, but deflation. Moreover, Keynesian economic policies were not designed to respond to a shortage in a natural resource essential to the U.S. economy.
The legacy of supply side economics has not been a restoration of the broadly based prosperity Americans enjoyed from the end of the Second World War to the inflationary recession of 1974. The legacy has been chronic deficits, a growing national debt, and economic inequality as great as the United States experienced right before the Stock Market Crash of 1929.
According to date compiled by the United States Treasury and others, at the end of the Second World War in 1945 the national debt as a percentage of Gross Domestic Product was 114%. By the end of the administration of President Carter in 1980 this had declined to 32%.
According to the Statistical Data Section of the International Revenue Service, during this time the top tax rate was as high as 94%, and never got below 70%. During the Reagan administration the top tax rate declined to 28%.
At the end of the Reagan administration the national debt as a percentage of GDP had grown to 50%. Four years later, when President George H.W. Bush left office it had grown to 61%. It declined briefly during the Clinton administration, and it was 129% when Trump left office in 2021.
From 1945 to 1980 national debt as a percentage of GDP continued to decline during the wars in Korea and Vietnam.
According to the World Bank, during the Reagan administration military spending increased from $143.69 billion, during the last year of the Carter administration in 1980 to $325.03 billion during the last full year of the Reagan administration.
This was unnecessary and provocative. The United States was at peace. The Soviet Union was losing its war in Afghanistan. The Soviet Union was collapsing from within. It was dangerous to provoke the leaders of the Soviet Union with a nuclear arms race when they felt their country, and hence their power, disintegrating.
During the Carter administration there was a six month recession. Unemployment reached 7.8%. During the Reagan administration there was a sixteen month recession. Unemployment reached 10.8%.
https://en.wikipedia.org/wiki/List_of...
An average of 2,600,000 jobs were created every year during the Carter administration. During the Reagan administration this declined to an average of 2,000,000 jobs created every year.
http://www.middleclassparc.com/jobs.html
The rise in inflation that followed the Iranian Revolution of 1979, and which subsided after 1982 was caused by fluctuations in the world price of petroleum over which neither President Carter nor President Reagan had much control.
If you want to learn what really happened during the Reagan administration, do not read Econoclasts. Read "The Triumph of Politics: How the Reagan Revolution Failed," by David A. Stockman.
Stockman was Reagan’s Director of the Office of Management and Budget from 1981 to 1985. Stockman makes it clear that, contrary to what Ronald Reagan claimed during the 1980 presidential campaign, it never was possible to cut taxes, raise military spending and balance the budget without making cuts in domestic spending the vast majority of Americans would have opposed, including a large minority of Republican voters. Farm and business subsidies would need to be completely eliminated. Social Security and Medicare would need to be substantially reduced.
Stockman ended his book by writing, “we’re spending 24 percent of GNP, compared to raising only 19 percent of GNP in taxes…The Republican Party should not have told the American electorate in 1984 that we don’t have to raise taxes. It wasn’t true.”
.
February 16, 2020
I liked the premise of the book, however it took me too long to get through it due to some of the dense material. I plan on re-reading once I can get a primer of trade and finance, as at least some familiarity with the subjects are required. I would recommend to those interested in history and economics.
May 9, 2020
Very much a hagiography not surprisingly (but includes much more intellectual cuckoldry with monetarism than I was suspecting). Sure the supply-siders were a little smarter than traditional conservative budget slashers but just as naive for all the same old classical ideas of savings equaling investment, totally rational actors, benefits of flat taxation, etc. Cites Andrew Mellon and his Taxation: The People’s Business, of the notorious Mellon family, as a big inspiration for the movement so the power elite were well ahead of the thought leaders. Praises JFK as a proponent of their type of growth and gives most credit for the end of stagflation in the 1980s to tax policy while not dealing much with the broader elements of globalization going on. Paints a very rosy picture of the process of deindustrialization, corporate raiders and new powers emerging from Silicon Valley. Doesn't see much wrong in how a massive increase in the net worth of the wealthy (growth) has allowed "philanthropists" like Bill Gates to take on the task of managing the issues of poverty. You can find a lot of the old stuff cited online e.g. Robert A. Mundell's The Dollar and the Policy Mix, Alexander Cockburn's interview of Jude Wanniski
December 16, 2023
This book is a hidden gem, offering valuable insights and ideas. However, its flow is hindered by repetitive content from the author. Additionally, the use of colloquial language could be minimized for more direct and clear phrasing.
January 23, 2010
This book was very informative about the politics behind macroeconomics and serves as an introduction to the last hundred years of academic and political macro. I have only two complaints: 1. I wanted some visual aids to understand the economic models. I was a little frustrated that I remembered many of the names of models (example: Mundel-Fleming model and neoclassical model) from class, but didn't remember the specifics. I could have used some more explanation so I could appreciate the politics the author was explaining. In short, I wanted more economic primer. I may be the only person in the world who wants more economics in this book. My second complaint is that it has a couple of spots where I am bored and lost in the names. Overall, the book had some great points to make. I wonder what an economist would think of the book.
July 22, 2011
As previously commented, it provides a solid history of key macroeconomic policy approaches and results for the last 100 years including what supply side is and how it has worked. More relevant, it tells how bleak the 70's were (I remember those days), how tough an economy Reagan inherited (he didn't blame his predecessor for 30 months, he fixed it) and how 20 years of renewed prosperity was enabled. Our leaders need to pay attention!
did-not-finish
October 11, 2012I got through the first few chapters and just couldn't continue. Perhaps I did not have enough economic background to understand the arguments the author was making. The author seemed to be comparing the current recession with the stagflation times of the 70's, but since we are not experiencing inflation at this time, I can't make this initial connection.
Still on the lookout for a readable book on supply-side economics...
Still on the lookout for a readable book on supply-side economics...
January 4, 2011
Insightful. I quick and efficient introduction to economic history during the 20th century, especially pre-Reagan/Reagan era.
November 26, 2014
Excellent history and economics.
Displaying 1 - 9 of 9 reviews