In my
latest commentary for the Acton Institute (the best
Catholico-Evangelical-Hayekian think tank you ever saw), I try to
warn public policy makers away from "the tyranny of the obvious"
and "wishing makes it so" tendencies in governing.
Here's a clip:
Ronald Reagan gave birth to a long boom when he
successfully repudiated the Keynesian economics and punitive
marginal taxation that had come to characterize the American
approach to running the economy. By doing so, he restored
prosperity to a nation mired in the twin crises of unemployment
and inflation and wondering whether the presidency was simply
too big for one man. His formula of stimulating the economy
through tax cuts rather than government distribution of
centrally-confiscated dollars fueled increases in American
productivity and thus provided the nation with a basis for real
wealth generation.
There is an important lesson to be learned from Reagan’s
boom. Practioners of public policy should be required to
memorize it: Beware the tyranny of the obvious.
When Reagan took office, he brought with him a message
Jack Kemp had been proclaiming ahead of time like some John the
Baptist of the beltway. The message was counterintuitive, but
incredibly powerful. What was it? You can cut taxes, and if
they have been too high, you will actually gain revenue. The
“obvious” answer is that Reagan was wrong. Higher taxes mean
greater revenue, don’t they? In fact, it is still an article of
faith among many leftists that Reagan’s tax cuts led to
spiraling deficits and a mounting national debt. In this case,
however, the faith is misplaced. An empirical examination shows
that Reagan’s massive tax cuts led to real (inflation-adjusted)
gains in federal revenue. Lower rates mean more incentive to
earn and less incentive to cheat. At the same time, the sea
change in tax policy put the fundamentals in place for long
term economic growth. In short, what seemed obvious (cutting
taxes would lead to disaster for a government already sorely
pressed financially) was clearly incorrect. Reagan derailed the
express that heads for the place where all empires end: high
taxes and empty coffers.
