Jude Wanniski
June 27, 2001


Memo To: Karl Rove, Counselor to President Bush
From: Jude Wanniski
Re: A Review of Political History

Word has reached me that Michael Boskin, who was chief economic advisor to President Bush the Elder, is now on the speaking circuit promising one and all that our national economy will be doing handstands come the fourth quarter. I hope you know that Boskin is not a supply-side economist, or he would have sent up red flags when Bush broke his “read my lips” pledge which caused him to lose re-election in 1992. Nor are Boskin’s pals, who are populating the economic posts of the current Bush administration. I think I surprised you early this year when I said the Bush economists would have to know, the supply model before they could be thought of as supply-siders, and they do not understand it. What worries me, Karl, is that when Boskin is proven wrong this fall, and the economy does not respond to the tax cuts he and his pals designed to “put money into people’s pockets,” The New York Times and The Washington Post will announce that tax cuts don’t work!! Honest-to-goodness supply-siders will get the blame. We are used to that, Karl, so I am not simply whining about it. I simply mean to point out that if you hope to help our young President make his way to a second term, you may have to learn the supply model yourself so you can tell the real stuff from the fake. One clue: If you believe in floating exchange rates, you are not a supply-sider. Here is a guide to the 20th century I recently sent to my clients, as a reminder that only supply-side Republicans win. Please call if you would like further advice or instruction.



As Richard Nixon signed the executive order at Camp David on August 15, 1971 that took us off the gold standard he said: “I don’t know why I am doing this. William Jennings Bryan ran against the gold standard three times and he lost three times.” The following short history of the Republican Party in the last century should demonstrate that the GOP only wins the favor of the electorate when it represents positive-sum, supply-side growth ideas, and is punished by the voters when it offers zero-sum austerity.

Bryan, of course, was a Democrat at the turn of the 20th century. At the time, Republicans were supply-siders, totally dedicated to keeping the dollar as good as gold. Bryan Democrats blamed “a cross of gold” for the squeeze on prices and wages that occurred when the government in 1873 chose to return to gold at the pre-Civil War parity of $20.67 an ounce. Bryan really did not run against gold, though. He argued for a return to the bimetallic gold/silver standard that prevailed from the earliest days of the Republic to 1863, when the Greenback Era began. He wanted debtors to be able to pay debts and taxes in cheap silver instead of dear gold. It sounded sweet to debtors, but was deeply flawed, as the voters realized. Here is a supply-side rundown of how the voters reacted to presidential candidates in the 20th century:

1) Bryan ran and lost to William McKinley twice, in 1896 and 1900, and against William Howard Taft in 1908, McKinley and Taft defending gold.
2) Republican Teddy Roosevelt won in a landslide in 1904, with monetary policy not at issue.
3) Democrat Woodrow Wilson won with a minority of popular votes cast in 1912. Roosevelt ran as a third party candidate and prevented Taft from winning a second term. Wilson’s most important economic plank was his promise to cut the tariff rates. Taft Republicans supported the 16th amendment providing for an income tax.
4) Wilson won a second term in 1916 by promising to keep out of WWI but then promptly got into it. Income-tax rates were pushed up dramatically to finance war spending.
5) Republican Warren G. Harding won in a 1920 landslide by promising to slash the income-tax rates and “return to normalcy.” This was the first “supply-side” tax campaign, inspired by Pittsburgh banker Andrew Mellon, who verbalized the Laffer Curve and dynamic tax scoring and became Harding’s Treasury Secretary.
6) Republican Calvin Coolidge won another landslide in 1924 with promises of more tax cuts, and the 1920s roared ahead. Mellon officiated at Treasury.
7) Republican Herbert Hoover won easily in 1928, promising a higher tariff to help farmers. The Democrats adopted a similar plank. In 1929, the tariff expanded to include everything imaginable, not just farm products. Wall Street crashed, revenues collapsed, and Hoover raised taxes to balance the budget.
8) Democrat Franklin Roosevelt won easily over Hoover in 1932 and Alf Landon in 1936 as both Republicans defended the Smoot-Hawley Tariff Act. Republicans argued for fiscal responsibility and supported higher tax rates to balance the budget.
9) Roosevelt won in 1940 with a smaller majority against Wendell Willkie, the first GOP candidate to back away from support of the high tariff, but who made no issue against the high income-tax rates. FDR won a fourth term against Thomas E. Dewey in 1944, with economic policies not at issue in the midst of WWII.
10) Republican Dewey was favored over Harry Truman in 1948, but still made no issue over the remaining high war-time taxes. He promised fiscal responsibility and lost to Truman.
11) Republican Dwight Eisenhower hinted he would cut taxes if elected and defeated Democrat Adlai Stevenson, who promised to close loopholes for the rich, including the oil-depletion allowance. Once elected, Ike reneged; he would not cut taxes until the budget was balanced. The top income-tax rate remained 91%. In a second Ike-Stevenson contest, Ike won again.
12) Democrat John F. Kennedy said he would get the country moving again. Republican Richard Nixon said nothing about taxes. JFK won narrowly.
13) In 1964, Democrat Lyndon Johnson pushed through the Kennedy tax cuts, bringing the top rate to 70% from 91%. Republican Barry Goldwater led the fight against the tax cuts and was demolished that November by LBJ.
14) LBJ escalated the Vietnam War that JFK had stumbled into and raised taxes to pay for it. In 1968, Nixon came back with a promise to end the war and cut taxes, and he defeated Democrat Hubert Humphrey who was associated with the war and the Vietnam war tax.
15) Nixon raised the capital gains tax in 1969, went off gold in 1971 with a promise to come back to it soon, overwhelmingly defeated anti-war Democrat George McGovern in 1972, then announced he was staying off gold for good. He was forced to resign.
16) Successor Gerald R. Ford extended the Nixon oil-price controls and in 1976 faced Democrat Jimmy Carter, who promised to end the controls and clean up the tax code. Ford almost lost the GOP nomination to Ronald Reagan, who promised to cut taxes and spending. Ford then lost to Carter.
17) Carter backtracked on his campaign promises to end oil-price controls and clean up the tax code and tried to inflate his way to re-election. Gold soared as high as $850 per ounce. Reagan defeated Carter with promises to cut income-tax rates by 30% and end inflation. In 1984, Reagan coasted to re-election over Walter Mondale, who had promised to raise taxes.
18) Republican George Bush promised “read my lips, no new taxes,” and pledged to cut the capital gains tax to 15%. Michael Dukakis campaigned against cutting the capital gains tax and lost. In Bush’s first year, he gave up on his capgains promise. In his second, he raised taxes.
19) Democrat Bill Clinton in 1992 promised a middle-class tax cut and defeated Bush, whose tax hike led to a recession. Clinton raised taxes on high incomes and the Democrats lost control of both houses of Congress. In 1996, Republican Bob Dole, a lifetime opponent of tax cuts, embraced a weak tax plan that supply-sider Jack Kemp had opposed before joining the ticket. Clinton won easily and joined with the Republicans in cutting the capital gains tax to 20%. The stock market boomed and the dollar got stronger and stronger and stronger and stronger.
20) Texas Republican George W. Bush won by a single electoral vote, outvoted in the popular vote by Democrat Al Gore. Both conceded monetary policy to the central bank chairman Alan Greenspan, with no discussion on whether or not to end the current greenback era of floating dollars. Bush’s tax plan, designed by conservative Keynesians, was zero-sum, rejecting any reductions in the capital gains tax. President Bush continues to lead the party in a demand-side economic model, leaving an opening for the Democratic Party in the 2002 and 2004 elections.