Republican Gospel: Voodoo Economics, Supply Side, Trickle Down, Laffer Curve, Starve the Beast, Taxpayer Protection Pledge

From the Wikipedia article on supply-side economics:

Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. According to the theory, consumers will then benefit from a greater supply of goods and services at lower prices. Typical policy recommendations of supply-side economics are lower marginal tax rates and less regulation.

The origin of the term "supply-side economics" (also known as "the trickle-down theory") is in dispute, but it was first used in 1975 or 1976. It was an economic theory that developed during the 1970s as a result of the apparent failure of Keynesian economic policies to deal with the phenomenon of stagflation felt in that period, and with the problems posed by the 1973 oil crisis.

The supply-siders were influenced strongly by the idea of the Laffer curve, 

  which states that tax rates and tax revenues were distinct—that tax rates too high or too low will not maximize tax revenues. Supply-siders felt that in a high tax rate environment, lowering taxes to the right level can raise revenue by causing faster economic growth.

(The diagram of the Laffer Curve represents tax revenues as  tax rates rise from 0% on the left -- obviously generating no tax revenue -- to 100% on the right, which also generate no tax revenue because no one will produce anything if they must pay 100% tax on their income.)

Ronald Reagan embraced the supply-side theory, reducing income tax rates across the board, especially the capital gains tax rates. In the Republican primary race for the presidency in 1980, George H.W. Bush ridiculed supply-side policies as "voodoo economics." (He sheepishly followed those policies as vice president, and showed tepid support for them when he ran and was elected president in 1988.)

Paul Krugman attacked the theory, and Reaganomics, in a book entitled Peddling Prosperity. Krugman said: "When Ronald Reagan was elected, the supply-siders got a chance to try out their ideas. Unfortunately, they failed."

Critics in the Reagan years charged that advocates for lowering taxes didn't really believe their own arguments that they were trying to increase revenues, but rather were trying to "starve the beast" (something that economist Bruce Bartlett has called "the most pernicious fiscal doctrine in history") -- tax cuts would force lower government spending. Paul Samuelson, another Nobel-winning economist, called this notion "the tape worm theory: the idea that the way to get rid of a tape worm is to stab your patient in the stomach."

One noted advocate of "starving the beast" is Grover Norquist, president of Americans for Tax Reform, best known for saying "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub."

Norquist is one of the most powerful and influential unelected men in the U.S. Since 1986, Americans for Tax Reform have sponsored the "Taxpayer Protection Pledge", a written promise by legislators and candidates for state or federal office that commits them to oppose tax increases. Currently, 273 Republicans in the House and 40 of 47 Republican Senators have signed the pledge; 1,252 state legislators have done the same.

Economist Paul Krugman summarized the strategy in February 2010: "Rather than proposing unpopular spending cuts, Republicans would push through popular tax cuts, with the deliberate intention of worsening the government’s fiscal position. Spending cuts could then be sold as a necessity rather than a choice, the only way to eliminate an unsustainable budget deficit." He wrote that the "...beast is starving, as planned..." and that "Republicans insist that the deficit must be eliminated, but they’re not willing either to raise taxes or to support cuts in any major government programs. And they’re not willing to participate in serious bipartisan discussions, either, because that might force them to explain their plan -- and there isn’t any plan, except to regain power."

John Kenneth Galbraith wrote, "Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy -- what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows."

After 30 years of "voodoo economics," there still aren't enough oats on the road to satisfy the number of sparrows struggling for them.