Low Interest Rates, Not Tax Cuts, Revived Economy

The late 1970s saw the sharpest increase in the cost of energy in modern history. The rise of OPEC and its embargo drove the price of oil up by several hundred per cent in a very short period. Since the cost of energy influences the cost of everything that is produced and sold, such a large and rapid increase sent the price of everything soaring, leading to the inflation that now defines the decade and the Carter presidency. A natural time lag (and the tendency of politicians to take credit when it's not due) helps obcsure the cause/effect relationship

Those high energy costs also led to a huge increase in oil exploration. By the early 1980s, economies had adjusted to the new energy costs, and, indeed, those costs declined in real terms as more oil outside of OPEC came on stream. Lower energy costs, not Reagan's supply-side economics nor his tax policies, reversed inflation. Tax rates were relatively unimportant.

Then in the late 1980s came a confluence of computer power and the software to make use of that incredible power. The electronics boom drove an enormous rise in productivity. Everything from supervising a construction site or running an office to finding oil deposits deep underground became much easier. Again, taxes were irrelevant as the economy sucked up computing power and spit out a huge gain in efficiency. By the 1990s gains were snowballing, as innovative uses of new technology spawned still more technology. The lure of making millions in a new venture totally obscured the tax ramifications of doing so.

But, of course, that bubble had to burst some time. It was George Bush's misfortune to take office when it happened. The economy needs a period to adjust to the end of such a huge bubble, and it seems to be doing so. But to claim that Bush's tax cuts (which led to the second-largest budget deficits in our history; in real terms, second only to those under Reagan) caused the recovery, is as specious as arguing that a rooster causes the sunrise.

Most Americans understand that the Government has certain social obligations, and are prepared to pay the cost of fulfilling them. Republican economic demagoguery over taxes obscures that basic American generosity.