Understanding Supply Side Economics

By Henry Oliner

It has been derided as voodoo economics by George H.W. Bush and contemptuously as 'trickle down' economics by opponents from the left and some from the right. When Ronald Reagan embraced supply side economics many Republicans and Democrats were skeptical. When unemployment shot up to 11 percent and interest rates spiked to 20%, Reagan's own party and even members of his cabinet were questioning the wisdom of cutting taxes at the high end of the rates. High unemployment, painful as it was, helped bring inflation under control. Interest rates and unemployment fell. Supply side economics has retained a bitter opposition. Economics is often not intuitive: at first glance the proposition seems illogical, but after further consideration and analysis it proves to make good sense. Unfortunately few issues get beyond first glances before minds are ossified, and fail to understand the principle. It is not immediately intuitive that decreasing tax rates (percentages) can possibly yield greater tax revenue (dollars). It is unsatisfactory to describe the process as a trickledown effect: that.... (Read Full Article)