bankruptcy of the Keynesian positionnwas at last exposed. Unemploymentnsoared to 8.5 million while the governmentnran up the largest deficit sincenWorld Vv^ar II-$45 billion. This wasnthe very coincidence that Keynes hadnpronounced impossible.nIt was at this point that a certain formernfootball player, then a Congressmannfrom New York, developed anninterest in economic issues. Jack Kempnbecame a catalyst. Assisted by theoreticiansnPaul Craig Roberts, NormannTure and Jude Wanniski, Kemp devisedna new strategy for the Republicans.nWhere they had once been taxncollectors for the Democrats, preoccupiednwith paying off the deficits run upnby the other party, they would seize theninitiative by advocating economicngrowth through massive tax cuts. Kempnhimself, in cooperation with SenatornWilliam Roth of Delaware, introduced anbill to slash personal income taxes by 30npercent over three years. This bill, in anslightly modified form, became the keystonenof President Reagan’s own economicnrecovery program.nSupply-siders insist that we can haventax cuts without inflation; that thenresulting economic boom will swellnrevenues to the point where matchingncuts in expenditures are unnecessary.nAs Bruce Bartlett writes:nA tax cut which merely reduces governmentnrevenue, government spendingnstaying the same, might be inflationarynbecause it would probably requirenmonetization of the increasedndebt. But a reduction in tax rates—innparticular, marginal tax rates—doesnmore than just increase individual disposablenincomes. It alters relativenprices, changing the tradeoff betweennwork and leisure, savings and consumption.nWhether such a tax cutnwould be inflationary in the shortnrun depends on how much additionalnproduction and saving it generatesnand how the government finances itsnshort-run debt.nLike other supply-side fiscalists,nMr. Bartlett marshals a battery ofn;M)inChronicles of Culturenprecedents to support his contention.nChief among these are the Coolidge-nMellon tax cuts of 1924-28 and thenKennedy-Johnson cut of 1964. Therenis no denying that these cuts were fabulouslynsuccessful; what remains to benseen is whether the same strategy willnwork as well under drastically alteredncircumstances. In 1964 inflation andnunemployment were negligible by today’snstandards. The most obnoxiousnfederal agencies-EPA, OSHA, EEOC,nthe Consumer Product Safety Commission—hadnyet to be invented, and regulationsngenerally were nowhere nearnas voluminous or expensive.nThese differences must be taken intonaccount. There is much in the supplysidenargument that appeals to commonnsense. Most of us would acknowledgenthat people will work harder and longernif they are allowed to keep more of theirnearnings, and that investors will putntheir money where they can obtain thenbest return. But history teaches us thatnprolonged inflation can warp perceptionsnof self-interest. At this writing,nat least, there is no evidence that thenAmerican people are convinced thatnsupply-side economics will deliver whatnit promises. Indeed, prominent membersnof the business community appearnskeptical that it can. Wall Street’s reactionnto passage of the President’s taxncut was something less than rapture.nFurthermore, federal regulations willnremain a drag on economic developmentnfor years to come. Regulation annuallyndiverts over f 100 billion dollars fromnproductive to nonproductive uses. Whatevernthe administration may do to lightennthis burden by trimming and consolidatingnwill take time and, in any event,nit is unlikely that the American peoplenwould countenance a complete return tonthe environmental, safety, health andnconsumer-protection standards of twondecades ago.nFor these reasons, Mr. Reagan hasnchosen to pursue something less than anpure supply-side strategy. He has partlynoffset his tax cuts with spending cutsnand has resorted, at least temporarily.nnnto high interest rates. Orthodox supplysidersnare unlikely to quarrel with thenformer. There are plenty of wastefulnand intrusive federal programs thatnought to be done away with in the namenof limited government alone. The latter,non the other hand, is an anathemanto them. High interest rates are inhibitingnthe growth surge that the supplysidersnsay will follow in the wake of thentax cut. They are particularly damagingnto the small, innovative companies thatnare the leading creators of new jobs. Thenadministration realizes this, but maintainsnthat high interest rates are necessarynto control the money supply and tonsatisfy the public that it is serious aboutnthrottling inflation. The supply-sidersnfear that this is another case of the samencombination of faintheartedness andnhalfway measures that may have alreadyndoomed the Thatcher experimentnin Great Britain.nlime will tell who is right in thisnparticular debate, just as it will rendernthe final verdict on the success or failurenof the whole of the administration’sneconomic recovery plan. Mr. Reagan’snbold gamble may fail, but that does notnmean that he was not justified in attemptingnit. Keynesianism is dead, dollar-for-dollarntax and budget cuts wouldnbe insufficient to revive the economy,nand to balance the budget by raisingntaxes is unthinkable at this time. Supply-sideneconomics, in one form or another,nis the only alternative.nMr. Bartlett, who conceived, wrotenand titled his book before Ronald Reaganntook office, could not have foreseennthe particular variation that thenPresident would adopt. He was correct,nhowever, that Mr. Reagan would makentax reduction his first priority—a decisionnmade largely on the strength ofnthe concepts so admirably summarizednby Mr. Bartlett.nAldous Huxley once wrote, “No lessnthan war or statecraft, the history ofneconomics has its heroic ages.” To readnReaganomics is to realize that we livenin stirring times. •n