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The Capitalist Advisor Prescience Backed by Science T HE CAPITALIST ADVISOR MAY 14, 2021 THE CAPITALIST ADVISOR PRESCIENCE BACKED BY SCIENCE In Memoriam: Robert Mundell (1932-2021), Father of Supply-Side Economics Richard M. Salsman, Ph.D., CFA President & Chief Market Strategist May 14, 2021 upply-side economics—which rehabilitated Saysian Most academic and business economists despised supply-side S economics and discredited demand-side Keynesian and economics (and still do) because it was pro-capitalist and Monetarist models in the 1980s and 1990s—helped a handful for so long proved them (and their long careers) so wrong. of prescient political leaders establish sound money, reduce The humiliated haters nonetheless clung to their dogmas, marginal tax rates, revive prosperity, boost investment returns, persisted in preaching them, and eventually got their revenge dissolve the U.S.S.R., end the Cold War, and liberalize China.1 by reintroducing crisis-generating policies in this century. 1 See “The Supply-Side Revolution,” in “The Secrets of Reagan’s Success (Part II): Economic Policy,” The Capitalist Advisor, June 21, 2004, pp. 8-25. Copyright © 2021 * INTERMARKET FORECASTING INC. * All Rights Reserved 4004 LINDEN TERRACE ▪ DURHAM, NORTH CAROLINA 27715 PHONE 919-942-2419 ▪ FAX 919-338-2652 ▪ [email protected] I NTERMARKET FORECASTING, INC. PAGE T HE CAPITALIST ADVISOR MAY 14, 2021 Professor Robert Mundell, who died on April 5th, is Table One depicts the superior economic-investment worth remembering and honoring because he was the performance delivered by predominantly supply-side poli- father of supply-side economics.2 As such, he did more cies (1980-2000) versus the inferior subsequent results good for the political-economic world than any political (2000-2020) caused by predominantly demand-side poli- economist since J.B. Say (whose pro-capitalist, supply- cies. “Reaganomics” performed so well, both economi- side doctrines in the early 1800s were subsequently cally and electorally, that the opposite party didn’t taught and accepted by three generations of Ameri- change much in the 1990s. Candidate Clinton derided it cans).3 Mundell influenced other important economists, as “trickle-down” but as president in early 1995 de- of course, including the more famous Arthur Laffer.4 clared “the era of big government is over.” In 1996 he signed a law that would “end welfare as we know it.” Most important is that Mundell gave supply-side eco- Thereafter the jobless rate declined from 5.6% to 3.9% nomics academic gravitas. For a quarter century (1974- (2000), by which time the federal budget was in surplus 2000) he taught at Columbia University (and previously for four straight years (1998-2001). Mundell, Laffer, and at Stanford and the Uni- Reagan—each either for- versity of Chicago). gotten or reviled today— Mundell’s reputation were crucial to the ,many also was helped by the successes of 1980-2000. fact that he was the fa- ther of the euro, a pro- My essay from October ject which demand- 1999 (republished on pag- siders believed (falsely) es 3-4) discusses Dr. Mun- was statist. Citing Dr. dell’s Nobel Prize and the Mundell and touting the remarkable fact that 70% virtues of supply-side economics also became a bit less of the Nobel Prizes in economics the 1990s went to controversial after he won the Nobel Prize in econom- economists associated with the (relatively) free market ics in 1999. But thereafter the influence of the supply- Chicago school of economics. It should be of interest side model waned, for political reasons. Two decades of both intellectually and historically, first because it essen- neoliberalism (1980-2000) were too much for the Davos tializes Mundell’s important influence and second be- elites and statists who populate academia, business, and cause it appeared at a crucial turning point, when the politics. For two decades they’ve exacted revenge; they’re “policy mix” was shifting from what had worked so well now pleased to witness a return to pre-1980 money print- already to what would soon work so badly. The past four ing, deficit spending, protectionism, and lawlessness. decades demonstrate the power of ideas—and policies. 2 See Emily Langer “Robert Mundell, Nobel-Winning Economist and Architect of Reaganomics, Dies at 88,” Washington Post, April 6, 2021; Tom Redburn, “Robert A. Mundell, a Father of the Euro and Reaganomics, Dies at 88; His Insights on Global Finance Earned Him a Nobel, While His More Iconoclastic Theories Fostered the Adoption of a Single European currency and Supply-side Economics,” New York Times, April 6, 2021; and James R. Hagerty, “Robert Mundell Helped Inspire U.S. Tax Cuts and the Euro; Winner of Nobel Prize in Economics, Who Has Died at age 88, Relished His Role as a Maverick and Lived in an Italian Palace,” Wall Street Journal, April 6, 2021. 3 See “Keynesian vs. Saysian Economics,” in “Introducing the ‘Policy Mix Index,’” The Capitalist Advisor, April 23, 2002; “Saysian Economics,” The Capital- ist Advisor, December 31, 2003 (Part I) and January 5, 2004 (Part II); and “A Textbook for Saysian Economics,” The Capitalist Advisor, December 31, 2018. 4 “Arthur Laffer, His Curve and the Truth in Supply-Side Economics,” The Capitalist Advisor, June 21, 2019. I NTERMARKET FORECASTING, INC. PAGE 2 T HE CAPITALIST ADVISOR MAY 14, 2021 I NTERMARKET FORECASTING, INC. PAGE 3 T HE CAPITALIST ADVISOR MAY 14, 2021 I NTERMARKET FORECASTING, INC. PAGE 4 .
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