The Corner

Economy & Business

Senator Rubio and the Supply Side Orthodoxy

Senator Marco Rubio (R-FL) speaks during a news conference at the VIII Summit of the Americas in Lima, Peru on April 14, 2018. (Marcos Brindicci/Reuters)

Senator Marco Rubio has been taking some flak recently for a comment he made to The Economist noting that the recent corporate tax-cut bill has not produced a large windfall for American workers despite some well-publicized bonuses and wage hikes. He went on this morning at NRO to elaborate, to “double down” in his words, on his critique, contending that the corporate tax cut’s focus on cutting the corporate rate meant that rather than push for investment that would benefit American workers, the bill emphasized rate cuts that primarily benefit American capital. He is right on both points and brave to make them.

The point the senator makes in both cases is that in today’s modern, globalized, increasingly automated economy, helping capital does not mean that all American workers will benefit. We can see that American capital is increasingly flowing to employ foreigners in overseas factories while retaining the management and creative jobs in the United States. Neither the senator nor I contest the argument that this efficient use of capital increases economic growth, both globally and at home. What we contest is the idea that growth without concern for distributional effects should be the only goal for the American economy.

Millions of Americans have lost their old jobs or had to reduce their compensation to fight off global competition fueled by American capital. The economic hardships this has caused can be seen by anyone who travels to places where American manufacturing used to dominate the local economies. Those hardships can be measured by the increasing share of working-class Americans who draw upon means-tested federal benefits just to get by. The social and political hardships this has caused can be seen in Donald Trump’s shocking conquest of the Republican party in its primaries and his unexpected victory over Hillary Clinton in the fall of 2016.

The supply side orthodoxy that holds the Republican party in its grip seems unwilling to consider that perhaps the world has changed since 1980. Back then, cutting taxes for individuals and corporations meant the bulk of that money would be spent or re-invested in America. Today that is far from assured. Back then, the computing revolution was in its infancy. Apple’s famous 1984 ad promoting its then–state of the art personal computer aired nearly three years after the Reagan tax cuts passed. Today, driverless trucks are said to be around the corner, a development that would cost nearly 3 million American men, largely without college degrees, their middle-class-wage-paying jobs. The senator thinks that tax and economic policies should take account of these new challenges. I agree. It appears, the high priests of supply side do not.

Senator Rubio should take heart, however, in the story of the origins of the supply side movement. It, too, challenged Republican economic orthodoxy which for decades had eschewed tax policy as a significant lever in its arsenal of economic-policy weapons. Representative Jack Kemp started with only a few other, largely younger followers within the Republican congressional ranks. Within a few years, however, the surprising anti-tax victory in California in 1978 helped convince the national Republican party to get behind Kemp’s big tax-cut bill. By the early 1980s, what had once been heresy had become orthodoxy.

Trump’s win should be understood to be a wake-up call akin to the tax-cut victories of Proposition 13 in 1978 and Proposition 2 ½ in 1980. Millions of Americans want an economy that works for them, too. Senator Rubio understands that and wants to start a debate that adapts the principles that have served us well to the demands of our times. It would be a shame if the conservative movement and the Republican party closed its ears to such a call. It would be especially ironic if it does so as it owes its national power to the very popular revolt it would be ignoring. It would also be a tragedy, as ignoring these trends won’t make them go away: They will simply shift their expression into something much more radical, and much less friendly to freedom and to limited government, than anything Senator Rubio proposes.

Henry Olsen — Mr. Olsen is a senior fellow at the Ethics and Public Policy Center, an editor at UnHerd.com, and the author of The Working Class Republican: Ronald Reagan and the Return of Blue-Collar Conservatism.

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