Supply-Side Memo to Time Jude Wanniski September 12, 1996

Memo To: George Church, Time
From: Jude Wanniski
Re: August 19 tax story, "Calculating Dole: 15% or Bust"

Your story does take the trouble to explain that the 15% plan was chosen because it was simpler to explain than the "alternative" under consideration. You might have mentioned that the alternative was the plan presented by Kemp and Forbes, which had been designed by the supply-siders who had worked at the Reagan Treasury and on Capitol Hill. The 15% plan was not worked out by supply-siders, but by John Taylor of Stanford, who is a conservative Keynesian influenced to a degree by the supply-side debates over the last 20 years. In other words, when you then report that "Dole is siding with supply-side theorists... and their argument that tax cuts spur growth by giving consumers more money to spend and businessmen more to invest..." you are not even close to being accurate. For one thing, the argument that tax cuts spur growth by giving consumers more money to spend and businessmen more to invest is not a supply-side argument!! It is a Keynesian demand-side argument. In a supply model, all incentives are aimed at increasing production, not consumption. A lower marginal rate of tax on labor will cause more labor to be offered in the market. A lower marginal rate of tax on capital will cause more capital to be offered in the market. This increment of capital and labor will increase the size of the economy, which means consumption increases as a residual.

This may be too difficult for Time readers to grasp, but if you were to put your mind to it, I think you would understand it. We have been making these arguments for more than 20 years, but most reporters do not bother to make a phone call to those of us who have resurrected the supply model, which dominated economic thinking for two centuries prior to the Keynesian epoch. There are no telltale signs in your piece that you made a serious effort to find out what is going on in this second wave of the supply-side revolution. I would be happy to discuss this with you if it happens that you are assigned another story having to do with economic theory.