Back in the late 1980s, I was working at the National Bureau of Economic Research in Cambridge, Mass., while finishing my dissertation. At that time, I attended Harvard’s public-economics seminar, where weighty and technical papers about tax and budget policy were discussed. Early in the semester, I noticed that many of the Harvard professors went out of their way to criticize a junior professor who also attended. If the fellow said the sky was blue, senior faculty would coalesce around the idea that the sky was red, and wonder what genetic defect might afflict anyone who would think otherwise.
Puzzled that even Harvard’s lack of collegiality could countenance this level of hostility, I asked a friend why everyone was so rude to this professor. My friend said, “That is Larry Lindsey, the most important conservative thinker on the planet right now. He has Reagan’s ear and Thatcher’s, and most everyone on the Harvard faculty hates it.”
Lindsey, who years later became my colleague at the American Enterprise Institute for a short time, spent three years in the early 1980s at the White House. His ascent to the status of international conservative icon began in 1985, when his dissertation investigating how taxpayers respond to changes in tax rates won a prestigious national academic award. Lindsey’s work was the most rigorous and respectable effort to date to document the beneficial effects of Reagan’s fiscal policies.
The academic community was almost universally opposed to Reagan. Following the lead of such luminaries as Paul Samuelson, the academy and the Left pushed the accepted wisdom that Reagan’s deficits would destroy the economy. Witness this 1983 warning from the editors of The New Republic: “The Reagan Administration’s economic policies are neither careful nor protective of the nation’s future. . . . They have touched off a national borrowing and buying binge that will have to be paid for in the morning.”
Into this debate leaped Larry Lindsey, and his 1990 book The Growth Experiment was a fearless and pointed defense of Reaganomics that was based not on assertion, but rather careful argument, academic citation, and telling charts.
It is an unusual choice to reprint a book untouched except for additional chapters, but Basic Books’ new version, The Growth Experiment Revisited, does this for a simple reason. Looking back at what Lindsey wrote in 1990, one can see that he was right about virtually everything, and the American Left was wrong. This is the book that Paul Krugman is terrified everyone will read.
Lindsey anticipated the boom of the 1990s and documented why it was the logical consequence of Reagan’s policies. He carefully documented the flaws in the reasoning used by the Left. His discussion, for example, of how inaccurate and even intellectually indefensible it is to calculate the budgetary impact of a tax change without dynamic scoring still rings true today.
The last chapter of the original volume is a final example of how accurate Lindsey’s analysis turned out to be; believe it or not, it was titled “The Great Surplus of ’99.” In that chapter, Lindsey documented that, given the high revenues that were coming in, a small amount of spending restraint would lead to a massive surplus in 1999, which he estimated would be in the range between $230 billion and $347 billion. At a time when deficits stretched “as far as the eye could see,” he saw growth and surpluses because of deregulation and tax cuts. As with so many other of his observations, he nailed it: The actual surplus reached $236 billion in 2000.
#page#The second half of the book is new, and provides Lindsey’s insider history of the 2000s. As he was the center of gravity of the George W. Bush economic team, it is gripping stuff. Even as the economy was booming in the Clinton years, Lindsey warned George W. Bush—then the governor of Texas—that the bubble was about to burst; when it happened, the team was ready with a program that had been prepared precisely for that eventuality. The case is clear that the Bush stimulus of 2001 was better than the later Obama stimulus because Bush’s plan cut marginal tax rates in addition to acting on other, more Keynesian prescriptions.
Lindsey finishes with a detailed analysis of our current predicament, and he still has a master’s ear for catchy economic comparisons. Spending is so high now that increasing the top marginal tax rate to 50 percent would cover just one month of the deficit. The debt is so high that if interest rates went back to normal, then interest costs would go up by $500 billion per year. Just paying that interest bill would require lifting the top rate to 50 percent and eliminating all itemized deductions.
And all of the incessant tinkering with the tax code has turned it into a blob of nightmarish proportions. In 2011, we spent $392 billion complying with the U.S. tax code, according to Lindsey. That same year, we spent $337 billion on new homes, $328 billion on cars, and $375 billion on computers, their peripherals, and software.
Lindsey waxes poetic at this point in the book. Reagan’s infantrymen won so many battles, and for this! The problem, Lindsey argues, is that conservatives since Reagan have fought the wrong tax battle. By fighting about tax rates that apply to income, they were able to push rates lower. But Lindsey points out that income is an elusive concept. Lawmakers will jigger the definition to favor their friends and contributors, and victories will be frittered away with creeping, even corrupt, complexity.
Lindsey’s solution is to switch to a Value Added Tax, but a uniquely designed one that is itself a novel contribution of the book. Lindsey’s VAT would have multiple rates, to address concerns about progressivity, and be paid by firms instead of individuals, so that nobody would have to fill out a tax form to pay his taxes. Such a tax plan would indeed be an astonishing improvement over the current mess, and one can only hope that lawmakers of both parties bury themselves in the last chapters of this book.
But for conservatives who have been in the game for many years, the first half of the book is an essential reread. The original Growth Experiment was the first serious academic attempt to defend supply-side economics, and it is a tour de force that is better in the fullness of time. Along with Michael Novak’s The Spirit of Democratic Capitalism, it is one of the few books that should be on every conservative’s shelf.
After all, there is no economist on earth who has been more right about more things over the past 30 years than Larry Lindsey. Thank goodness he had the courage to stand up to the intimidation of the academic Left when he was a young junior professor at Harvard.
– Mr. Hassett is the John G. Searle Senior Fellow and the director of economic-policy studies at the American Enterprise Institute.