I started Bruce Bartlett's The New American Economy: The Failure of Reaganomics and a New Way Forward. Bruce Bartlett served in the administrations of Ronald Reagan and George H.W. Bush.
To
be honest with you, there is a lot in this book that I do not
understand. But I'll blog about what I do understand, as I understand
it.
The main point that I got out of my latest reading is that different economic approaches work in different contexts. Keynesianism
was appropriate during the time of the Great Depression, for that was
when there was serious deflation, plus people were not spending much
money. Within that context, the Keynesian approach of printing more
money (to elevate prices) and government spending was a panacea. But
Keynesianism did not work that well in the 1970's, when the United
States was having a serious inflation problem. In that period of
stagflation, supply-side economics was beneficial, and Ronald Reagan helped to enact supply-side policies in the early 1980's. Monetary policy needed to be much tighter to fight inflation, and Reagan accomplished that with Paul Volker of the Federal Reserve. And
the dramatic tax cuts under Reagan stimulated the economy. According
to Bartlett, the tax cuts were especially appropriate for that time
because inflation was subjecting many people to a higher tax burden by
putting them into the upper-income levels, even though they were not
exactly rich and prosperous. Their income only appeared that way due to inflation.
Bartlett
is critical of the current Republican obsession with tax cuts, and he
states that Republicans don't even consider the sorts of tax cuts that
can stimulate spending, such as the Investment Tax Credit, which would
encourage "business spending on capital equipment" (page 7). Bartlett
believes that Republicans push the same old tax cuts "out of dogma" and
not because they have "any rational reason to believe that they would
stimulate the economy" (page 7).
And yet, while my impression is
that Bartlett holds that Keynesianism would be a good approach to the
current financial crisis----that the government should spend money to
stimulate the economy because people aren't doing so themselves, thereby
contributing to deflation----he does believe that there will come a
time for "fiscal retrenchment" (which probably means austerity), for
increased government spending is inflationary, and there will come a
time when inflation will be harmful rather than helpful. But Bartlett
has fears in the government-spending department on account of ballooning
entitlement spending. Bartlett maintains that a Value Added Tax (a
sort of consumption tax) will be an effective way to "raise a lot of
revenue at a very low cost in terms of lost output" (page 11).
Bartlett----at least in this book----does not appear to support taxing
businesses and entrepreneurs at higher rates, for that can be
deleterious to the economy. But Bartlett maintains that the VAT is a
preferable alternative, which can raise revenue for the government.