Gingrich’s Connection to the Supply-Side Revolution Confirmed

Newt Gingrich has taken a remarkable amount of flak for making claims that as a young Representative in Congress thirty some years ago, he was part of the group of supply-side revolutionaries that developed and pushed through the Reagan economic reforms, in particular the historic tax cut of 1981.

The criticism, oddly enough, has in the main come from conservatives. Radio host and author Mark Levin spoke for many last week when he made a blanket denial:

“I like Newt Gingrich a lot. But he had nothing to do with the development of supply-side economics. …It pre-dated his election to the House by several years. So he didn’t help Ronald Reagan develop supply-side economics. He wasn’t even on Ronald Reagan’s radar at the time. I’m not trying to be controversial or rude, but I want you to know the facts.”

I myself have been marveling at the back-and-forth about these details in supply-side history, in that I remain the only professional historian ever to have written on the topic.

I speak of my book Econoclasts, which it is true makes no mention of the name Newt Gingrich across its 358 pages. And yet what the book does say is that the supply-side revolution distinguished itself from its relatives in the free-market movement by being an amalgam of three things. “The triumph of supply-side economics,” I wrote, “issued from a most unusual combination of intellectual profundity, journalistic acumen, and political strategy.” Without all three, no supply-side revolution. And the last of these will bring us to a piquant Gingrich connection.

As for the first – intellectual profundity – it was economist Robert A. Mundell who as early as 1961 first wrote the first papers outlining a strategy of monetary restraint in concert with tax cuts to get an economy out of a recession caused by big government. Arthur B. Laffer, Mundell’s protégé at the University of Chicago, where both taught in the late 1960s, refined the argument.

Second, there was journalistic acumen. Mundell and Laffer, despite their eminent perches in academe, found the resistance to their views too stubborn in the universities. So they took their case to Robert L. Bartley, editorial page editor at the Wall Street Journal, the nation’s largest newspaper. That page became a bulletin board for supply-side ideas in the 1970s. The business community and a good chunk of Washington were thereby won over.

Then there’s political strategy. Rep. Jack Kemp of New York actualized Mundell’s ideas in legislation. His “Kemp-Roth” tax cut introduced in 1977 provided for a 10% rate reduction over each of three years.

In addition to Kemp himself, there were other figures on Capitol Hill and environs who helped will the supply-side revolution into realization. These were not limited to such luminaries as economists Norman B. Ture and Alan Reynolds, Rep. John Rousselot, Sen. William V. Roth, and Congressional and later executive-branch staffers Paul Craig Roberts, Bruce Bartlett, and Stephen J. Entin.

And yet for all this, by the summer of 1981, the supply-side revolution was no sure thing.

In his first months in office, in early 1981, Reagan actually dithered on moving on his tax cut. He conceded to watering down Kemp-Roth, and he actually had to be convinced by Democrats that the top rate of the income tax had to be taken down all at once, instead of in phases.

Smelling blood, in spring of that year Democrats started to offer alternatives to Reagan’s tax cut, in the form of smaller, more “reasonable” tax cuts. Crucially, these did not index the tax code against inflation, as the Reagan bill would soon propose and has been a beloved staple in the tax code since indexing came into effect in 1985.

In stepped – Newt Gingrich. Gingrich, a second-term Representative, led an “Economic Recovery Working Group” in the House whose purpose was to show “what each member can do to help the Reagan tax cut” against its Democratic alternatives.

The group gave daily briefings and issued strategy memos on how to get the job done in the House. “Emphasize that the Reagan program is a real tax cut; and that the O’Neill/Rostenkowski program will mean a real tax increase for most Americans by 1984” was the gist of one memo. This particular point is the one Reagan would seize on in the famous chart (designed by Entin) that he presented to the American people in a televised address in late July, which closed the deal in Congress.

The free-market movement, and the history of economic theory in general, is littered with examples of grand ideas that got nowhere or were misapplied in practice. F.A. Hayek’s free-market reforms remained nothing but ideas for generations; Milton Friedman’s monetarism was bungled by the Nixon administration.

The supply-side revolution was something different. It had real follow-through in the political process, let alone the economy. It is the furthest thing from idle to speculate that had people like Newt Gingrich not acted in 1981, we would have had the alternative tax cut that would have been unrecognizable from any of Jimmy Carter’s tax shavings of the 1970s. The 1980s would have followed up the 1970s as a uniquely problematic decade in our economic history.

At scholarly conferences around the country, I have been insisting that we need still more work on the epic event that was the supply-side revolution, particularly in terms of its political culmination in real reform, reform which benefited the nation and world for decades on end. We don’t have those books yet, but if we did, and they were based on rigorous use of sources, they would reveal a not inconsiderable role that Newt Gingrich played at one of the supply-side revolution’s critical junctures.

N.B., a memo Newt Gingrich wrote pressing the strategy for passing the Reagan tax cut, July 1981 (Ronald Reagan Library):http://www.shsu.edu/~bfd001/EconoclastsSite/Images/Pages/Documents.html#6