A View from the Supply Side
Perhaps the most extraordinary aspect of supply-side economics was how quickly it came to dominate the discussion of economic policy in the 1980s. To many observers, it seemed that supply-side theory came out of nowhere--and in a sense it did. Before the 1970s, it had virtually no presence in the economics profession; references to supply-side economics did not exist in academic textbooks or scholarly works. Yet by the 1980s, supply-side thinking had penetrated both major political parties in the United States and captured the sympathies of the president. It became the rationale for an economic program that changed the course of the nation.
If monetarism was the first experiment of the conservative revolution, supply-side economics was the second. However, both experiments are equally important for anyone trying to make sense of the economic turmoil of the 1980s: a decade of record unemployment, breathtaking deficits, and unparalleled interest rates. Like any experiment, it is essential to understand the theory and hypotheses before one can fully appreciate the test. The origin of supply-side economics and the principles that define it are described in this chapter.
You might think that supply-side economics would be easy to explain because it was a relatively new theory in 1980. However, since supply-side economics did not originate from the work of one