An ode to a supply-side Democrat: Lloyd Bentsen

An ode to a supply-side Democrat: Lloyd Bentsen
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On Feb. 6, many noted the birthday of Ronald Reagan, one of our greatest pro-growth leaders. Reagan was a Republican, yet many Democratic leaders, too, have laid claim to the pro-growth mantle. 

One such individual was Lloyd Bentsen, who was born on this day, Feb. 11, 1921. Bentsen had quite a life: During World War II, he served as a bomber pilot in the Army Air Corps, flying 35 combat missions and rising to the rank of colonel. He earned many decorations, including the Distinguished Flying Cross. 

Bentsen also served in Congress for nearly three decades and was, of course, the Democrats’ 1988 vice presidential nominee.

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Perhaps his most significant achievement on Capitol Hill came on Feb. 28, 1980, when, as chairman of the Joint Economic Committee, he released a report, “Plugging In the Supply Side,” which made the case for pro-growth policies.  

 

Bentsen’s document came after a decade of national economic disappointment. Indeed, the 1970s gave us a new word, “stagflation,” referring to the simultaneity of stagnant growth and surging prices; the inflation rate hit double digits in both 1974 and 1979.  

Such stagflation was puzzling to most economists of the era, because they were following their understanding of the old Keynesian model, which held that rising inflation — by their reckoning, rising “aggregate demand” — would lead to more production, not less. 

Such “demand-side” thinking might have had its place in the 1930s, when consumers and investors were paralyzed by what Franklin D. Roosevelt had dubbed “fear itself.”  But by the 1970s, after decades of deficit spending, the issue wasn’t inadequate demand but, rather, inadequate supply. 

That is, the accumulation of taxes and regulations had choked off supply. So, if more money entered the economy, it simply bid up prices, as opposed to stimulating new production.  

It was in this era that a new school of economists, the “supply-siders,” emerged to challenge the Keynesian orthodoxy; the best known of these was a young iconoclast at the University of Southern California, Arthur Laffer. 

The heart of the supply-siders’ argument was that tax rates had risen so high and were squelching incentives to produce the needed supply. 

The supply-siders were mostly Republican, but they were flatly dismissive of the constricting high-tax policies of recent Republican presidents, including Dwight Eisenhower, Richard Nixon and Gerald Ford. 

Instead, they hailed the tax-rate reductions of Democrat John F. Kennedy, who had been Bentsen’s colleague, as well as friend, in the House. 

Meanwhile, in 1980, the president was Jimmy Carter, also a Democrat — but no JFK. Whereas the latter had sought to decrease the burden on the productive economy by cutting tax rates, the 39th president had wanted to increase taxes— an approach that would only exacerbate the economy’s dearth of supply. 

So this was the context for Bentsen’s Joint Economic Committee (JEC) report, which declared that its goal was to recommend “a comprehensive set of policies designed to enhance the productive side, the supply side of the economy.” 

As we can see, this was a near-total reversal in policy language, from the old emphasis on the demand side to a new focus on the supply side. The hard times of the 1970s had, indeed, changed policy thinking — and Bentsen was a driving change-agent. 

Remarkably, the JEC report was endorsed by all 20 members of the committee — lawmakers of both chambers and of both parties. Among the signatories was the liberal Sen. Edward Kennedy (D-Mass.), who was also, of course, the brother of JFK.  

In its 248 pages, the JEC document laid out policies aimed at “enhancing saving and investment in the economy.”  The many policy prescriptions therein were varied, yet the goal of reducing tax rates was the report's clear takeaway.  

As we all remember, later that same year, Carter was defeated in his bid for re-election by Ronald Reagan. The following year, President Reagan signed deep tax-rate reductions into law, gaining the support of Bentsen, as well as many other Democrats. 

In the years that followed, the economy boomed. Indeed, the realization that rate reductions boosted the supply side was so widespread that when Reagan called for another round of rate cuts in 1986, Bentsen and most of his fellow Hill Democrats again voted “aye.”

In the decades since, Democrats have cooled on the idea of tax-rate reductions, although it must be noted that during the Clinton and Obama presidencies, tax rates, even at their highest, were substantially lower than they had been in 1980, when Bentsen issued his fateful report.  

In the meantime, Republicans have kept the supply-side faith. The just-signed Tax Cuts and Jobs Act, for example, is a Lafferian prescription. To be sure, the words “supply side” are no longer in vogue, even among GOPers, but as Shakespeare said, a rose by any other name would still smell as sweet.  

As for Bentsen, he died in 2006 with his legacy secure: war hero, public servant and pro-growth champion.  

James P. Pinkerton served as a domestic policy aide in the White Houses of Presidents Ronald Reagan and George H.W. Bush. Since 2011, he has been the co-chair of the RATE Coalition, a group that advocates for a more competitive tax code.