“Econoclasts:” A Book Review

“Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity” By Brian Domitrovic | ISI Books (August 2009) | 368 pp.

Brian Domitrovic, assistant professor of history at Sam Houston State University, has written an important book.Econoclasts is the first in-depth history of “supply-side economics,” the intellectual movement that laid the foundation for the tax-cut and sound-money policies of the late 1970s and 1980s. Those policies liberated the United States from the grip of the dreadful stagflation of the ‘70s and paved the way for a quarter-century of almost uninterrupted economic growth and prosperity.

Professor Domitrovic has put an impressive amount of research into Econoclasts. The result is a book with a sense of intimacy, almost as if the reader becomes the proverbial “fly on the wall” in various key meetings of supply-siders from the theory’s conception, to prolonged gestation, and ultimately to its labor pains and birth as actual policy. Details abound. Some are essential to Domitrovic’s narrative (e.g., the precise origin of the term “supply-side economics”); others are superfluous (e.g, a protagonist’s predilection for drink or a “doe-eyed” journalist making a brief cameo appearance).

Econoclasts is at its strongest in providing illuminating insights into the real-world consequences of various policies. (If you are pressed for time, the “gold” in this book are chapters 4,6,7, and 8.) There are a number of eye-opening gems: how President Nixon’s price controls favored big business and hampered entrepreneurialism; the crippling impact of tax-code “bracket creep;” how inflation impelled the venerable steel company, USX, to acquire Marathon Oil and get into the petroleum business.

Prof. Domitrovic writes fluently and clearly. He superbly recreates a period which many Americans are too young to remember. As a historian who also has studied economics, he elucidates some vital economic cause/effect relations. The reader well versed in economics will encounter a certain amount of repetition. For the lay reader, however, the repetitions are a helpful, and I think necessary, teaching device.

One shortcoming of Econoclasts is its treatment of Ronald Reagan. The few times that Prof. Domitrovic acknowledges Reagan, one senses a certain disregard, which, by implication, may lend weight to the caricature of Reagan as an intellectual lightweight. In fact, Ronald Reagan, well versed in the writings of Mises and Sennholz, might have understood economics better than any other president. At a time when the CIA and leading orthodox economists like Paul Samuelson reported that the Soviet Union was making strong economic progress, Reagan knew why such assertions were impossible, and he was vindicated when the Iron Curtain lifted and the truth was laid bare. He understood why government economic intervention causes more problems than it solves.

For Prof. Domitrovic to make it appear that supply-side policies were adopted almost in spite of Reagan rather than because of him cries out for elaboration. Alas, here the author’s research has a huge hole. He never delved into Reagan’s thoughts, priorities, and political prioritizations.

Another minor weakness of Econoclasts is the author’s treatment of the Austrian economists. Early on in the book, during the author’s attempt to explain the Great Depression, he neglects Murray Rothbard’s indispensable America’s Great Depression and also the Austrian explanation of the boom/bust cycle. I also disagree with some of Domitrovic’s later characterizations of Ludwig von Mises. Domitrovic, a historian, not an economist, knows tons about the supply-side school, but too little about the Austrians; so much so that he would have been better off not mentioning them at all.

“Econoclasts” is a brilliantly clever title (compliments to the author or editor/publisher) but in fact, supply-side economics was not revolutionary or iconoclastic, but fundamentally conservative. Indubitably, the supply-side policy mix was superior to the stale Keynesian orthodoxy that preceded it, but supply-side economics retained the Keynesian/Washington-establishment flawed macroeconomic paradigm built around the modern democratic welfare state, political redistribution of wealth, and a monopolistic central bank.

Granted, such radical reforms were not politically possible during the supply-siders’ time in the sun. But now, after a generation of unchecked growth of government, we are approaching a dangerous denouement: national bankruptcy. Like the supply-siders themselves, Domitrovic, an able chronicler of their history, doesn’t seem to challenge the ethical legitimacy or economic viability of Big Government. Indeed, one of his five recommendations to President Obama at the end of Econoclastsappears to be to spend on his pet programs as long as he offsets some of the cost by canceling Republican earmarks. The truly iconoclastic position would be to cancel all the earmarks and pet programs of both parties, and to start shrinking the federal leviathan.

Now is the time for true “econoclasts.”