I feel no glee in the fall of British Prime Minister Liz Truss. However, I am elated that her fall was precipitated by her full embrace of supply-side economics, the conservative version of the “free lunch.” Her proposal to reduce taxes on the wealthy, with the fatuous promise that resultant growth would cover the cost, was resoundingly rejected by markets and by truthful analysts. Thus sounded the death knell of supply-side economics.
We would be in better shape if the same had occurred with the Trump tax cut for the wealthy in 2017. Treasury Secretary Steven Mnuchin claimed it would pay for itself through growth. Estimates are that growth paid for 20%, so the federal deficit went up dramatically.
We can only hope that the next conservative economic mantra to die is Milton Friedman’s explanation for inflation, as “always and everywhere a monetary phenomenon.” In the recent debate, Sen. Mike Lee misquoted Friedman, claiming he said, “inflation has one cause, federal spending.” Friedman actually said, “a budget deficit is inflationary if, and only if, it is financed in considerable part by printing money.” Lee’s economics is as flawed as his constitutional acumen.
Nonetheless, the low inflation rate over the last decade, despite massive money creation by the Fed, put the lie to Friedman’s claim as well. Of course, our current inflation is highly problematic. Government spending is certainly one factor, as is the Fed’s failure to reduce its monetary stimulus earlier. But equally prominent are the supply-side disruptions caused by the pandemic and by the Russian invasion of the Ukraine. Another significant factor is the pricing ability of our concentrated corporate sector, which is crowing that its profits have increased because it has raised prices to more than offset decreased sales, e.g. J&J, Albertsons on Oct 19.
So simplifications like Lee’s simplification of Friedman’s simplification need to go down the same path as Liz Truss’s supply-side economics. Economics is too important to be left to mantra-spouting politicians like Mike Lee-or Liz Truss.
Ken Jameson, Salt Lake City
