David Warsh: 50 years of the WSJ's supply-side quackery on taxes

SOMERVILLE, Mass.

Fifteen years after the 9/11 attacks triggered its ill-starred invasions of Afghanistan and Iraq, the United States finds itself engaged in a three-way contest for global influence with its old rival Russia and a surging China. Climate change is a growing threat around the world.  In response, the Republican Party is seeking a tax cut.

The heart of the undertaking is a reduction of relatively high U.S. corporate-tax rates.  That much is a measure on whose desirability experts right and left can agree. 

{Editor's note: Many large companies pay much less than the 35 percent top corporate-tax rate because of loopholes, etc. Indeed, some don't pay any taxes.}

But to compensate for revenue losses arising from various accompanying provisions in the 440-page bill (including inheritance-tax abolition, personal-income tax cuts), versions in both the House and Senate rely on an array of tax hikes and implicit spending cuts aimed squarely at the middle class.

The measure would add an estimated $1.5 trillion, or around 5 percent of its current level, to the national debt, over the course of the next decade, and, possibly, a good deal more. By the end of that time, either most tax cuts will expire, or further spending cuts will be required on virtually every government program but defense – especially Social Security and health care. The beneficiaries of the tax cut? Mainly the rich.

Martin Wolf, the respected economics columnist of the Financial Times, wrote the other day, “How, one must ask, has a party with such objectives successfully gained power?” Wolf identifies three main channels. Give disproportionate power to the wealthy. Foment animosity toward and among the less fortunate. And, first, and perhaps most important, tell a story:

"[F]ind intellectuals who argue that everybody will benefit from policies ostensibly benefiting so few. Supply-side economics, with its narrow focus on tax cuts, has been the main theory employed, because it directly justifies tax cuts for the very wealthy.''

As it happens, I have been reading George Melloan’s Free Markets Free Minds: How the Wall Street Journal Opinion Pages Shaped America (Encounter, 2017) the better to remember where the tax cut obsession came from, long ago.

Melloan, 90, retired in 2006, after 54 years at the WSJ, first as a reporter, then as a foreign correspondent, and, for well over half of that time, an editorial writer. He joined the editorial board of the paper in 1970, under the beloved Vermont Royster, and, practically alone among then-current members, survived the transition to Robert Bartley, Royster’s successor, in 1972. (Interim editor Joseph Evans had died suddenly.)

For 30 years, Melloan served as Bartley’s deputy. He was 10 years older than his boss, an in-house “anchor” to counterbalance the effects of the “sail” of the younger man’s more extravagant enthusiasms. In 1987, after Daniel Henninger was named Bartley’s official understudy, Melloan and his wife lived in Brussels, while he edited the editorial pages of the European and Asian editions of the paper.

Victors write our history – at least they try to.  Melloan relates the official version. The way he tells it, supply-side dogma devised by Robert Mundell, of Columbia University, and elaborated on by University of Chicago Graduate School of Business assistant professor Arthur Laffer, supplanted Keynesian demand-side fiscalism, at least in the minds of Bartley and editorial writer Jude Wanniski.

Mundell and Laffer may have been academics, public intellectuals, but they had ceased to be economists, inasmuch as they no longer sought to persuade other professionals of the validity of their views. They appealed directly to the public instead. (Many years later, Mundell was recognized by a Nobel Prize for work he had done in the 1950s on currencies.)

In the beginning, in the 1970s, Bartley, Wanniski, Laffer, Mundell and their confederates in the Congress – quarterback-turned-congressman candidate Jack Kemp in particular – exhibited a raffish charm in an age that otherwise took itself too seriously, an appeal whose spirit I sought to evoke last week by reprinting a piece written long ago.  Bartley related the origin story himself, in 1992, in The Seven Fat Years: and How to Do It Again, a book whose message was blunted by seven even fatter years under President Bill Clinton, who began his term by persuading Congress to raise taxes.

Bartley responded with his crusade against “Arkansas mores,” a campaign not entirely misplaced, but memorable chiefly for its no-hold-barred bitterness and perverse effects.  Bartley died in 2003, at 66, months after the invasion of Iraq, an adventure he had strongly supported.

Melloan’s plain-spoken account of a hundred years of Wall Street Journal history is a pleasing exercise in nostalgia, displaying precisely the eyes-wide-open sophistication that the corps of Midwesterners of which he was a member brought to what had been a parochial Manhattan financial daily before World War II.  His version of the foundational story of how General Motors pulled its advertising after the Detroit bureau scooped the company’s annual-model pageant, only to later meekly return to the fold, is especially good.

Omitted from Melloan’s account is most of the story of how editorial writer Lindley Clark, a monetary economist who had been among Milton Friedman’s first students at the University of Chicago, was squeezed out of the editorial page by the choice of Bartley.  Clark returned to the news pages as a columnist for several years, and, with colleagues Alfred Malabre, Jr. and Paul Blustein, conducted guerilla campaign against the editorial pages’ extravagant claims.

Nor does Friedman himself come up, except in passing.  Friedman’s record as an economic forecaster wasn’t perfect, but he was a far better guide to the action than gold-standard enthusiast Mundell.  Nor is mentioned the role of Harvard University economist Martin Feldstein in straightening out Reaganomics.  Economist Bruce Bartlett’s early advocacy is cited approvingly—but not his long-running and trenchant apostasy.

The fact is that WSJ economics has been dominated by quacks in the nearly 50 years since Bartley turned its editorial page into the nation’s principal voice of economic reform. (Ralph Waldo Emerson: “The two parties which divide the State, the Party of Conservatism and that of Innovation, are very old, and have disputed the possession of the world since it was made…. Now one, now the other gets the day, and still the fight renews itself as if for the first time, under new names and hot personalities….. Innovation is the salient energy; Conservatism the pause on the last movement.”)

For the most part the strategy worked, though mostly not for the reasons given.  Monetary stringency, deregulation, tax simplification, trade legislation, and budgetary discipline all had far greater influence. Tax-cutting itself apparently contributed relatively little to economic growth.

Thirty-five years after the “supply-side revolution,” the WSJ has little to show for it except books by its staffers and columnists. As far as I can tell, the GOP tax bill has no significant allies, no outside endorsers, besides the Republican congressional leadership and those who will benefit from (and repay) their largesse.

Those who write the editorials seldom display signs of having gotten wise to themselves.  I’ve read those pages every day for nearly 50 years, and, with the exception of regular forays into the microeconomics of particular situations, on which they (and Holman Jenkins, in particular) remain sharp,  today the editorials seem so cautious and hamstrung by their inconsistencies as to be interesting mainly when they contradict themselves.

No amount of back-channel complaints by professional economists, much less carping by the likes of me, is going to change things.  There is, however, a solution. When Old Man Rupert Murdoch finally loosens his grip on the newspaper he bought, in 2007, to serve as his flagship, his sons should hire back Bret Stephens, 44, to replace editorial page editor Paul Gigot, 62.

Stephens quit the WSJ last spring to become a columnist for The New York Times.  For months he had become ever more critical of Donald Trump’s candidacy – and of the surprising tolerance of it shown by his fellow editorialists.  Melloan judges Stephens to have been “no longer comfortable with the Journal’s traditions.”

In fact, the WSJ’s post-Royster traditions of innovative reform have deteriorated from their peak to the point of self-parody. Stephens at one point defined conservatism as “a principled commitment to limited government, free markets, constitutional rights, equal opportunity, personal responsibility, e pluribus unum and Pax Americana.” But Stephens, at least as I read him, is no originalist.  My guess is that he would renew the newspaper’s commitment to intelligent true conservativism – that is, defending the state of things as they are.

David Warsh, an economic historian, is a longtime economics and political columnist and proprietor of economicprincipals.com, where this first appeared. He is also a former reporter for The Wall Street Journal.

David Warsh: Robert Bartley's malign ghost at the GOP convention

There is no point in asking Donald Trump about his economists.  It hasn’t been that been that kind of a campaign.  In May the businessman reached out to Stephen Moore, of the Heritage Foundation, and CNBC television host Lawrence Kudlow, to help cut the $10 trillion cost of the tax cuts that he had proposed. Last week Moore and lawyer-turned-restaurateur Andy Puzder gave Trump a qualified endorsement in The Wall Street Journal: “A Trump Economy Beats Clinton’s.” Mark Skousen made the libertarian case against Trump here last spring.

If there is one man beside Trump himself whose spirit will inhabit the hall in Cleveland, at least metaphorically, it is Robert L. Bartley – not because Bartley himself approved of Trump – who knows if he did? – but because, as editor of the editorial page of The Wall Street  Journal,  Bartley spearheaded the creation of the say-anything, stop-at-nothing rules that ultimately led to Trump’s success in gaining the Republican Party’s nomination.

Bartley died in 2003. After taking over the editorial page in 1972, he became the most influential administrator of the rules of American public debate in the last third of the 20th Century. In that position, Bartley began the populist revolt that has since found its apotheosis in Trump.

Most influential journalistic umpire of an age?  How do you back a claim like that? Mainly by comparison, naturally -- in this case to the career of the most influential journalist of the middle third of the 20th Century, Walter Lippmann. As it happens, thanks to Craufurd Goodwin, of Duke University, dean of U.S. historians of economics we have a first-rate biography of Lippmann that concentrates on his role as a defender of market economics (Walter Lippmann, Public Economist (Harvard, 2014), as opposed to Ronald Steel’s Walter Lippmann and the American Century (1980).

Lippmann was the child of well-to-do German-Jewish parents, attended Harvard College, worked for Woodrow Wilson during World War I, was on friendly terms from then on with Franklin Roosevelt, John Maynard Keynes and Felix Frankfurter.  Bartley was the son of a professor of veterinary medicine, attended Iowa State University, and, as editor of the WSJ (as the editorial page editor was and still is called), became a friend of Robert Mundell, of Columbia University; Albert Wohlstetter, of RAND Corp.; Edward Teller, of the University of California, at Berkeley; and President Ronald Reagan.

Bartley was 34 when he was appointed to the job. He had voted for Lyndon Johnson over Barry Goldwater in 1964, but by the time that he spent a year in Washington, in 1971, he had become conservative, and, according to former WSJ reporter Robert Novak, by then a syndicated columnist, he was ostracized by liberal reporters there as a right-wing “kook.” Upon becoming editor he built a staff that eventually totaled fifty writers and editors, creating a universe of conservative opinion parallel to the news side of the paper.  Among those he hired was Jude Wanniski, a flamboyant reporter for The National Observer, a weekly newspaper published in those days by Dow Jones.

In a level-headed appreciation in Slate, in 2003, Jack Shafer described an experience that was widely shared during the 1970s:

“[W]hat attracted me to the page when I first started reading it in 1973, fishing it out of a trash can each night as I cleaned an office building, was Bartley’s allegiance to the classical liberal values of free markets and free speech. Back then, Bartley was a minority of one among editorial-page editors in hewing to those views, tilting against the neo-Swedish worldview of The Washington Post, New York Times, and Los Angeles Times editorial pages. So if Bartley overstated his case from time to time by shouting until his vocal chords hemorrhaged and his readers lost their hearing, well, that was OK by me.

“As a small-government libertarian, I never subscribed to the Journal edit page’s supply-side orthodoxy as formulated by Jude Wanniski, which didn’t seem to care about the growth of government as long as taxes got cut. Today, nearly everybody recognizes that the marginal tax rate of 70 percent when Ronald Reagan took office was at least twice as high as it should be. Cutting it down to 28 percent proved to be both a utilitarian and an individual boon. As economist Bruce Bartlett notes, the world took notice of the American tax revolution, and many nations followed our example to excellent effect. But back in the ’70s, when Galbraithism and Heilbronerism ruled, Bartley and his scriveners were the true intellectual radicals.

Wanniski introduced Bartley to a pair of refugees from the University of Chicago, Arthur Laffer and Mundell.  By 1975, Mundell was teaching international economics at Columbia. Wanniski described a “Mundell-Laffer hypothesis,” as revolutionary and mysterious as the prescriptions of Keynes 40 years before, all the more so for being confided in a series of restaurant lunches instead of conveyed as formal models in technical papers. The ideas eventually were encoded as WSJ  editorials and dubbed ‘supply-side’ economics: massive tax cuts that would pay for themselves by spurring growth.’’

Reagan won the presidency in 1980, and Bartley won a Pulitzer Prize for editorial writing. The editorial page had become immensely powerful, and has remained so.  Bartley told an interviewer in 1981, about the time Wanniski was fired for train-station-electioneering for a supply-side insurgent candidate, “Jude had a tremendous influence over the tone and direction of the page. He taught me the power of the outrageous.” Wanniski struck out on his own as a political consultant but remained close to the page. By 1982, Vermont Royster,  Bartley’s processor as editor, had joined the critics. Novak later quoted him:   “‘When I was writing editorials,’ said Royster, ‘I was always a little bit conscious of the possibility that I might be wrong. Bartley . . . is not conscious of the possibility that he is wrong.’  Yet Bartley’s page “exerted more influence than Royster’s ever attempted,” wrote Novak.

By the end of the 1980s, Bartley had won. George H. W. Bush had succeeded Reagan as president, but the WSJ  editorial page refused to take yes for an answer.  Bartley vigorously opposed Bush’s decision to seek modest tax increases to pay for war in the Persian Gulf to expel Iraq from Kuwait.  And when Bill Clinton defeated Bush, in 1992, the editorial page began a series of attacks on Clinton and his wife that ultimately sought to overturn election results with an impeachment trial.

I can pinpoint the day the page lost me altogether. It was March 18, 1993, with a famous editorial, whose title, “No Guardrails,” has since become a WSJ battle cry. A physician who performed abortions in Florida had been ambushed and killed by a protester in Florida. The editorialist, Daniel Henninger, wrote:

“[T]here really was a time in the United States when life seemed more settled, when emotions, both private and public, didn’t seem to run so continuously at breakneck speed, splattering one ungodly tragedy after another across the evening news. How did this happen to the United States? How, in T.S. Eliot’s phrase, did so many become undone?

“We think it is possible to identify the date when the U.S., or more precisely when many people within it, began to tip off the emotional tracks. A lot of people won’t like this date, because it makes their political culture culpable for what has happened. The date is August 1968, when the Democratic National Convention found itself sharing Chicago with the street fighters of the anti-Vietnam War movement.

“The real blame here does not lie with the mobs who fought bloody battles with the hysterical Chicago police. The larger responsibility falls on the intellectuals –university professors, politicians and journalistic commentators – who said then that the acts committed by the protesters were justified or explainable. That was the beginning. After Chicago, the justifications never really stopped. America had a new culture, for political action and personal living.

“With great rhetorical firepower, books, magazines, opinion columns and editorials defended each succeeding act of defiance – against the war, against university presidents, against corporate practices, against behavior codes, against dress codes, against virtually all agents of established authority.’’

There was something downright creepy about that editorial – like the moment in The Shining when a leering Jack Nicholson, peering over her shoulder, says to his wife, who has just discovered that his manuscript, on which he has been working obsessively, is repetitive nonsense, “How do you like it so far?”  Any relatively disinterested observer who lived through the 1970s, ’80s, and ’90s knew the extent to which those years had involved a calming down from the ’60s, of the restoration of rules of civility in the political realm, a process of equilibration.

From the short-lived administration of Gerald Ford to the zero-based budgeting and deregulation under Jimmy Carter, from disinflation under Paul Volcker to tax simplification and Social Security stabilization under Ronald Reagan, the signal events of those years constituted a retreat from the excesses of the ‘60s and a celebration of traditional values of order, credibility, ambition, and achievement. The one sphere in which pressure had continued from the Left was expansion of civil rights — of women, minorities, immigrants, gays, and specifically the rights of women to obtain abortions.  Which was, of course, exactly what the writer had in mind.

Shafer described the scorched-earth policies of those years:

“As many of Bartley’s ideas gained ascendancy, his page became shriller, unable to give Clinton proper credit for getting control of spending. There’s a thin line between hard-hitting opinion journalism and character assassination, a line that Bartley frequently erased. Instead of serving as a sophisticated and credible spokespage for classical liberalism—like The Economist—his page descended all too often into the dishonesty and hackery one associates with politicians.’’

By 2001, Bartley was ill.   He stepped down and began writing an occasional column.  The 9/11 destruction of the World Trade Center temporarily forced the WSJ from its offices around the corner. The editorial page soon began a relentless campaign for the invasion of Afghanistan and Iraq. Bartley died in December 2003, a week after receiving the Presidential Medal of Freedom.

I hope that Bartley will find as wise and good-natured a biographer as did Lippmann in Goodwin.  The rise of paleo-conservatives has been the subject of at least one good book, George Nash’s The Conservative Intellectual Movement in America since 1945 (1976), and is soon to have another, a long-awaited biography of William F. Buckley, by Sam Tanenhaus.  Peter Steinfels and Jacob Heilbrunn, have chronicled the rise of the neoconservatives: The Neoconservatives: The Men who are Changing America’s Politics (1979) and They Knew They Were Right: The Rise of the Neocons (2008). Populist conservatives were the subject of Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations (1994), by Paul Krugman.  If paleo-con Buckley’s National Review provided the starting place for the careers of George Will and Garry Wills; if neo-con Irving Kristol’s influence extended to Allan Bloom, Francis Fukuyama, and Dinesh d’Souza (and influenced the views of broadcast journalists such as John McLaughlin, Rush Limbaugh, and Glen Beck); then Bartley can be said to have furthered the careers of Wanniski, Michael Novak, George Gilder and Amity Shlaes. There’s plenty of material to work with there.

Is it fair to blame the chaos surrounding this year’s Republican nomination on Bob Bartley? Clearly I think so. No one in my lifetime systematically removed more of those guardrails, the norms governing good-faith political and economic discourse, than he. Trump is the downside of 40 years of WSJ ed page comment too often just like his: outrageous, sulfurous, and, all too often, half-baked.  Bartley is dead; long live Bartley: in his absence, the page was completely unable to steer the nomination toward a more viable candidate this year. The best that can be said is that its editorialists helped keep it away from Sen. Ted Cruz.

Paul Gigot, who succeeded Bartley in 2001, has steered a steady course, admitting more diverse opinion to its op-ed pages, coping with increasing disunity among the -cons mainly by proliferating columnists. Lee Lescaze, whom the WSJ hired from The Washington Post in 1989 and who founded its Weekend section, laid the foundation for a humane and sophisticated new wing of the paper before he died, in 1996.

Rupert Murdoch bought the paper from Dow Jones heirs in 2007. His sons, James and Lachlan, have their work cut out for them. Sometime in the next few years they must replace Gigot, 61, with an editor capable of restoring credible focus to a page that has become alternately ideological and diffuse. The decision of The New York Times in March to replace Andrew Rosenthal with James Bennett, hired back from The Atlantic, can only increase the pressure.

Two great heroes of the Republican Party in living memory were Dwight Eisenhower and Ronald Reagan. To lionize Reagan is not enough. Until the similarities of roles of both are understood, the Republican Party is not going to regain the White House.

David Warsh is proprietor of economicprincipals.com and a longtime financial journalist and economic historian. He, like the overseer of New England Diary, Robert Whitcomb, worked for The Wall Street Journal in the 1970s.