THE 'SUPPLY-SIDE' MYTH LIVES ON

The Wall Street Journal will publish anything with a tax-cut angle, no matter how preposterous. See, for example "Did FDR End the Depression? The economy took off after the post-war Congress cut taxes." (WSJ Editorial, April 12, 2010) Mr. Folsom's piece is riddled with factual errors and spurious conclusions.

For example, unemployment in 1939 was nowhere near 20%, as Folsom alleges in his attempt to discredit the New Deal, but rather closer to 10% according to The Historical Statistics of the United States. (Some data sources exclude "emergency employment" in government projects to arrive at an unemployment figure around 15%. Yet those who were employed by the government during the Depression had jobs just as surely as those working for defense contractors today.) So yes, the new Deal had an enormous positive impact on employment and economic growth. And so did the war.

Folsom states: "Ten million to 12 million soldiers and another 10 million to 15 million people making tanks, bullets and war materiel do not a lasting recovery make. The country essentially traded temporary jobs for a skyrocketing national debt. Many of those jobs had little or no value after the war."

What rot. Soldiers overseas and workers making war materiel make for a successful war; nobody argues otherwise. However, in the process, the industrial capacity of the country was vastly expanded, so while the wartime jobs may have little or no value after the war, the industrial infrastructure created during the war became the foundation for the post-war economic boom. Defense contractors shifted from making tanks and bullets to making cars and a vast array of consumer goods. Couple that with the huge accumulation of forced household savings during the war and you get ideal conditions -- productive capacity matched with effective demand -- for the boom after the war. To suggest that the relatively minuscule tax cuts were responsible for the boom is like the rooster taking credit for the dawn. It's the classic post hoc ergo propter hoc fallacy.

The myth of "supply-side economics' lives on -- only in the minds of its deluded proponents.

If tax cuts were the one-stop solution for all our economic woes, why then was economic growth slower during the Reagan and Junior Bush administrations, when tax rates were cut, compared to the faster growth during the Clinton administration, when tax rates were raised?