Supply-Siders’ Case for Austerity Carries No Shame

The scarlet letter these days is still an A, but it isn’t A for adultery. It is A for austerity.

Especially careful to eschew the A label are conservatives and supply-side economists, those who wrote legislation for Ronald Reagan or subsequent Republican leaders. Supply-siders prefer to be known as advocates of growth. Many conservative policy makers fear they will earn the disdain of the supply-side giants, the movement’s eminences, by pushing “budget cuts” instead of “growth.”

Among themselves, Republicans worry that the budget emphasis of Paul Ryan, the House Budget Committee chairman, will hurt the party by earning it the austerity label. The party will go down faster than Herbert Hoover in 1932. But there’s also an argument that Republican fear of the scarlet letter is exaggerated. And that the austerity concept is misunderstood.

Growth happens more easily when people believe that government is, and will remain, small. Austerity makes government smaller. Sometimes you have to have austerity first, so that you have trust, and growth can come later. Even some supply-siders say this.

Herewith, the case. Start with the nightmare the U.S. fears replicating: Europe. That financial disaster wasn’t just a crisis about pension obligations. It was a crisis of trust. First, markets and individuals trusted European governments when they said their budgets balanced over the long run. Stable governments with balanced budgets would leave the economy some room to grow and realize the advantages of a new continent-wide currency. Then the observers realized the governments were lying. Restoring trust is harder than killing it.

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