Econoclasts: The Rebels Who Sparked the Supply-Side Revolution, Intro

As I noted back on February 19th, I received an e-mail from the Intercollegiate Studies Institute with a sidelink to a brief (36:48) lecture by Dr. Brian Domitrovic, assistant professor of history at Sam Houston State University in Huntsville, Texas. I was so impressed by Dr. Domitrovic’s presentation that I ordered a copy of his book, Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity.

The book turned out to be, in many ways, much more than I bargained for, but I finally finished it on Saturday, and I'm glad I took the time!

I read the book because I was hoping to understand what the "supply-side revolution" was really all about: What did the proponents believe? How did they argue their case? and What were the results? I got all those things, for sure, but I also read way more details than I really wanted to take the time for, including lots and lots of names (along with brief biographical sketches), and article titles, and journal paper summaries, and descriptions of cocktail parties, and narratives about the personal feelings of participants at various points. Just "more than I wanted to know."

Still. Domitrovic wrote the book in hopes of filling a void. As he writes in his concluding chapter:

Economic crises caused by loose money and high taxes were cured by [supply-side] policy mix[es] in 1922, 1962, and 1981. Likewise, similarly caused crises that did not call forth the [supply-side] response--the recessions of 1969-70 and 1974-75--festered until the proper cure came.

There is not one word of historical scholarship on any of this. . . . In academic history, the secondary literature on supply-side economics is nil. Many things have been written about supply-side economics, but none of them falls in the category of "literature" as the term is used by historians.

Econoclasts, p. 292

Domitrovic notes that this lack of historical research has some serious (negative) practical implications for those of us alive today. (And I'm talking about today, in 2010.

[A]s the economic crisis deepened in 2008 and 2009, public officials were quick to compare it with the 1930s. It was as if the Great Depression were the only economic crisis, and the New Deal the only solution, they had ever heard of. How could it have been otherwise? What serious books could be read, what courses taken, on the new vehicles of economic stabilization that had been pioneered since JFK's time? Economists tracked this history to some degree, but their specialty is still distance and models. Documenting what policymakers did in the past, and why, is a job for historians.

What might history teach President Obama and the favorably inclined Congress he enjoys? First, it is time to understand what great Democrats achieved in the past. It is difficult to believe that had FDR honored George Washington's precedent and not sought a third term, he would be regarded today as anything short of a grand failure. The recession that started right after FDR's reelection in 1936 canceled all gains made by the New Deal and perpetuated the Great Depression until the clouds of war came. For all the make-work programs of the Works Progress Administration and the crusades against big business, the New Deal in its classic--1933-39--did nothing to restore prosperity.

JFK, in contrast, took all the right advice and knew when and how to defy it. His ambition was such that he was going to have spectacular growth on his watch, no matter whom he had cut deals with--even if that meant the Chamber of Commerce and Ford Motor, as opposed to this orders of the neoclassical synthesis who made up his Council of Economic Advisors. . . .

JFK's is the result Obama should aspire to, not FDR's.

Econoclasts, pp. 292-293

Domitrovic urges five specific policy recommendations. I intend to return to them in a future post after I have summarized some of the content of the book that most impressed me.

This post is merely to "forewarn" you of subject matter I hope to deal with in the days to come.

I hope you find it interesting and, perhaps, inspirational!

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Next post in this series: "Supply-side" economics was a colossal failure, wasn't it?

Economic Crises, Then and Now . . .

The Intercollegiate Studies Institute (ISI) sent me an email with a sidelink to a brief (36:48) lecture by Dr. Brian Domitrovic, assistant professor of history at Sam Houston State University in Huntsville, Texas, and author of Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity. (I didn't know anything about him from the sidelink. I was just intrigued by the title of the lecture: Economic Crises, Then and Now.)

Domitrovic begins with an observation I had thought of several times in the past, but had quit thinking about in the last many months: The media keep telling us that we are in "the worst recession since the Great Depression." But is this so? Are we really in "the worst recession since the Great Depression"?

Domitrovic's answer: No! No way! Not even close!

But, then, why do the media pundits keep talking about it in such terms?

I only listened to Dr. Domitrovic's lecture once--at high speed, so perhaps he answers this question. But I don't remember him attempting to explain why they say it. He was far more interested in demonstrating that it is not the worst. And, more, how we can avoid making it worse than it is.

But while we're on the subject, I'd like to state that it, from my perspective, there is one reason why the federal government is happy to feed this line to the media: Being able to fight "the worst recession since the Great Depression" gives the government implicit "permission" to do whatever they want, to build the government ever bigger and spend more money than ever: "We're in a crisis, you know!"

But Domitrovic gives a brief history of the financial ups and downs of American history--both before the Great Depression and after. And he provides a worthwhile historical perspective on things.

There is a way out of the wilderness, he says. And--surprise, surprise!--history teaches us that the way out is not through more government intervention. Indeed, additional government intervention is what will lead to greater disaster.

Don't believe him? Check out his stats. Take the time to listen to his presentation on MP3. And/or do as I have just done: order a copy of his book.

For the closest parallel to the current financial panic . . . go back to 1873

Scott Reynolds Nelson, a professor of history at the College of William and Mary, has written an intriguing paper that urges analysts to abandon the idea that the current financial panic is most closely parallel to the Great Depression.

According to most historians and economists, that depression had more to do with over-large factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now.

Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.

I found the details Nelson puts forward quite fascinating . . . and I appreciate having my financial time horizon pushed back another 60 years.

Check out The Real Great Depression in The Chronicle of Higher Education, "The Chronicle Review" for October 17, 2008: Volume 55, Issue 8, Page B98.