"The idea that Reagan-style tax cuts would have done anything is just nuts."

Bruce Bartlett said that. The guy who spearheaded Ronald Reagan's tax cuts. The guy who wrote a book called The Supply-Side Solution in the 1980s. He said that, and what's more, he's been saying it for three years since he predicted the Republicans would walk the country toward economic ruin in the 2006 book Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. What is he saying now?


His most recent column focuses on velocity, which is the number of times money turns over in the economy. That ratio is currently 1.69. If it were at 2007 levels of 1.9, "2nd quarter GDP would have been $1.6 trillion higher. Therefore, no recession," Bartlett says. If the problem is too little spending, then the solution, he deduces, must be more spending -- that is, more government spending.

Federal spending to fill the gaps in consumer spending is standard Keynesian economics, but no multiplier in the world is going to rescue America's short-term deficit and our long-term debt. In the next few years, we have to start paying for the services we've already committed to. And Bartlett has ideas for that, too. I especially like his defense of the value-added tax in this interview with Ezra Klein

Republicans are opposed in particular to the VAT precisely because it's such a good tax. They fear it would become a money machine and it would help the government grow. I agreed with that for a long time. But the problem now is that we need a money machine! We have all this spending in the pipeline. It's not a question of whether we'll create new programs. It's whether we'll fund the ones that are already there.

Bartlett's VAT enthusiasm echoes Alan Greenspan's, and this is an especially interesting thought, also from the Klein interview:

Suppose you had a 10 percent VAT and we said we weren't going to collect it for the next 10 months. People would buy like crazy. They'd buy toilet paper, they'd buy anything they could get their hands on that they knew they'd need in the future. We're depriving ourselves of a great stimulant tool by ignoring this.

Passing a VAT now that would go into effect in 10 months could theoretically perform the exact same stimulus. The threat of a future consumption tax would persuade Americans to buy some expensive products now, when the economy needs a consumer boost, to avoid getting hit by the tax later.

For a more in depth discussion of the VAT, go here. For the NYT Economix interview with Bartlett, go here.

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