I've posted twice now (here and here) about sections of Bruce Bartlett's book, The New American Economy. I found Chapter 6, titled, "Starving the Beast Didn't Work," quite persuasive.
First, Chapter 6. Bartlett deals with the idea, popular with many supply-siders and many Republican politicians in the 1980s, that even if cuts in tax rates didn't increase tax revenues (and, by the way, they didn't increase revenues), they were a good idea because they would "starve the beast." Translation: federal politicians, looking at the revenue constraint, would tame their appetites for federal spending. Even Milton Friedman got on board the "starve the beast" train. I came trepidatiously to this view in the 1980s but I am ultimately an empiricist. And the evidence, which Bartlett presents, is that starving the beast didn't work. Good paragraph:
Bill Niskanen, chairman of the libertarian Cato Institute and a member of the CEA under Reagan, now argues that the starve-the-beast theory has actually been perverse. It led libertarians and conservatives to think that tax cuts are the only thing necessary to restrain the growth of government. Passage of large tax cuts during the George W. Bush administration led them to become "casual about the sustained political discipline necessary to control federal spending." Niskanen says it is a "fantasy" to think that tax cuts have any restraining influence on spending. [italics in original]
Bartlett tells of James Buchanan's switch from being a strong proponent of balanced budgets to being a proponent of tax cuts to restrain spending. I seem to recall that Buchanan once said that people see taxes as the price of government and so when the price falls, people demand more government. Does anyone know where that line is? I think that's what, in fact, happened.
Later this week, I'll discuss his last chapter, "Dealing With Tomorrow's Economic Crisis," which I found much less persuasive.