Supply Side Economics works. This isn’t a political statement, nor should it be a particularly controversial one either, unless you believe I am referring to the mythical “trickle down” straw man conjured up by some in the political establishment. By supply side economics, I am referring to the broad basket of policies designed to establish a strong foundation for private sector driven economic growth and prosperity. These include, but are not limited to, a lower, broader, and simpler tax system, and a reasonable review of business regulations recognizing that entrepreneurship is not an unlimited resource.

There are those who argue, particularly progressive macroeconomists and those who find their empirics useful, that the most impactful form of economic stimulus is government spending (“investment”), preferably with borrowed money. The problem with this approach is not only the shaky historical and empirical evidence in support of it, but also that the entire theoretical foundation on which it rests is wrongheaded. Our goal should not be to maximize GDP in isolation, but instead to recognize that GDP is only a meaningful measure of well-being to the extent that it represents the desires of the American people. In other words, government directed tax and spend (or borrow and spend) policies may temporarily increase GDP, but how do we know that the money was spent on things people actually value?  That we are not once again simply borrowing from future growth to spend on yet another government miscue?  Increases in GDP can only be assured to correspond with increased national welfare to the extent that it represents largely free and voluntary exchanges between individuals.

The major political disadvantage of supply side economics is the apparent inability to provide Keynesian-style stimulus when politicians scramble to “do something” during economic downturns. However, there are ways to provide needed short term economic boosts to growth while also making our economic policy compatible with a long term approach to sustainable growth. For example, congress can approve and authorize spending for necessary investment (e.g. infrastructure), including completion of all necessary environmental reviews and/or issuance of permits by deeming them improved in law, but delay spending these authorized funds. To ensure that this spending is only approved when needed as a form of countercyclical fiscal spending, congress should include a provision specifying the economic conditions under which the money can be spent. Then, when the next recession inevitably comes, as it always will, this pre-approved spending (technically referred to as an automatic stabilizer with short inside and outside lags) will be timed exactly to provide valuable short term stimulus to the economy. Crucially, however, these funds will be actual investments, as they are composed of valuable and necessary investment, the timing of which has simply been shifted to provide the most beneficial short term impact while maintaining their long term economic viability. There should be no simple-minded “dig a ditch and fill it again” spending here, or “maintenance of effort” requirements that serve only to protect and preserve the bureaucracies instead of rebuilding the broader economy. Money won’t simply be authorized on the expectation that “shovel-ready” jobs will materialize. Instead, shovel ready jobs will be “pre-approved,” and then put into action when maximally useful.

There is no excuse for congress to wait until the next recession materializes before scrambling to find something, somewhere at which to throw money. There is also no need to forgo the long-term economic benefits that low taxes and reasonable regulation provide because of the perceived inability of supply side economics to provide counter-cyclical boosts to GDP. In our current Keynesian paradigm, we suffer from depressed long term economic growth while also lacking any real flexibility to provide timely and meaningful stimulus during our next recession. Supply side economics can serve both our short and long term economic needs, and do so in a more sustainable and efficacious manner then the unsustainable policies we have pursued over the last decade.