Christina Romer Fluffs Her Supply-Side Economics

President Obama’s main economic advisor from early on in his term, Christina Romer, is trying to discredit supply-side economics. On Sunday, she took to her column in the New York Times to dismiss the “worn out assumptions” at play when “politicians have trumpeted the supply-side benefits of cutting marginal tax rates.” In particular, she has Mitt Romney in her sights. Romney has called for across-the-board reductions in income tax rates of 20%, with the top rate taken back to its 1980s low of 28%.

Romer writes: “History shows that marginal federal income tax rates have varied widely….from less than 30 percent to more than 90 percent….If you can find a consistent relationship between these fluctuations and sustained economic performance, you’re more creative than I am.”

Here is the only evidence Romer offers in support of her claim that marginal tax rates don’t correlate with economic growth, a claim which ostensibly includes the economic history of the past 100 years, since the institution of the income tax in 1913. The lone citation is: “[G]rowth was stronger in the 1990s than in the 2000s, despite noticeably higher rates in the ’90s.”

Noticeably higher? The average marginal tax rate from 1990 through 1999 was 36.72%. From 2000 through 2009, the average marginal rate was 36.23%. An 0.49% difference is not in the universe of “noticeable.” And yet this 1990s example must be Romer’s strongest case, because it’s all she offers.

The record stretching back to the 1920s is of course borderline unambiguous. One of the most brutal recessions the nation had ever seen came in 1919-21 as taxes were raised at the top to 77%. In 1921, the United States announced a program of tax cuts that would take that maximum rate down by two-thirds, to 25%. A boom immediately ensued that remains among the greatest in history.

After World War II, the high tax rates instituted in the Depression and World War II presided over five recessions in sixteen years, from 1944 to 1960, and a per annum growth rate of about 2%. In 1961, John F. Kennedy moved into the presidency talking of major tax cuts. He came through on the corporate side in 1962, and his successor Lyndon Johnson did so on the personal side in 1964. Again, the persistent poor performance of recent years was sloughed off in favor of a multi-year boom at 5% growth per year.

And then there was Ronald Reagan’s 1982-89, which shamed the stagflationary long 1970s beyond a shadow of a doubt.

You can make arguments all you want about how there’s no correlation between this and that, but you’ve got to prove them with evidence—at the minimum you have to try. Here’s Romer on this matter: she’s made “careful studies” that marshal “strong evidence” showing “that the incentive effects of marginal tax rates are small.”

Then she changes the subject. After first claiming there’s no correlation between marginal tax rates and growth, her proof has nothing to do with the claim. Instead, the proof shows that people don’t realize that much more income after tax cuts than before. Notice: she makes a claim about there not being a correlation between tax cuts and growth, but chooses to buttress that claim by citing tangentially relevant evidence.

In logic, this is known as an argument with a false warrant. To be valid, an argument has to present evidence that is directly relevant to the premise. Romer’s argument is specious, in that the premise is about tax cuts and growth and the evidence is about tax cuts and income realizations.

Bad evidence (the 1990s in comparison to the 2000s example), bad logic (as above)—all that’s left is mischaracterizing your opposition, or “building a straw man” to knock down, as they say.

Sure enough, it comes: “Lower rates will unleash economic growth…and the [tax] cuts will largely pay for themselves—or so it’s often said.”

Or so it’s often said? I have a 1-terabyte hard drive filled with virtually everything the advocates of supply-side economics have put down on paper over the past half century, and I’ve been studying the material intensively for the better part of a decade. I can confirm that this stuff about increased revenues given tax cuts has not been “often said.”

In fact, no historian has ever been able to confirm that supply-siders “often said” that tax cuts raise revenues. This, rather, is a claim that the opposition to supply-side economics has long imputed to its adversaries—the old straw-man technique.

What you do see “often,” however, is the insistence on the part of supply-siders that without strong-dollar monetary policy, tax cuts can be rather useless, a position that acquits the supply-siders very well in slow-growth-tax-cut eras such as the George W. Bush years. That Romer makes no mention of supply-side monetary policy as she casts aspersions against supply-side economics with a broad brush is finally to render her position ludicrous.

People who make comprehensively faulty arguments are prone to one more misstep, and that is preening. Romer gets trapped here as well. Aside from her arguments being “careful,” hers are “based on facts” (and as opposed to those “worn-out assumptions”). Unlike supply-side advocates, “Economists” like her “have devoted thousands of pages in journals to testing [tax-cut] effects more scientifically.” And Romer argues not from “ideology” but from “solid evidence.”

Supply-side economics has encountered this kind of comic establishmentarian opposition ever since the get-go back in the 1960s. This is one of the reasons its torchbearers took the fight out of the academic and into the political sphere in the Reagan years. Nothing succeeds like success, and the track record of supply-side tax and monetary policy is one of epic winning every time it has been tried. If the deniers still want to mess things up in the likes of the New York Times and the Obama campaign machine, let them.