Supply Side: Are We Winning Yet?

Here’s how we’ve been doing versus the socialist welfare states over the last thirty-five years:

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I had no idea what results I’d find. (Though I’ll freely admit that I hoped to see Reagan and the Bushes looking rosy-cheeked.)

Not so much. Zealots will tout the biggest plus year (Reagan) and biggest minus (Clinton), but that’s typical meaningless single-year, single-statistic cherry-picking that both sides do. (I wish Krugman would stop it.)

What I see here is a lot of randomness. In particular, I don’t see a big swing towards the US in the 26 years since Reagan took office and supply-side theories took hold.

Total growth in GDP per capita, 1980 to 2006:

US: 67%
EU: 62%

Over twenty-six years, a 5% difference (7% multiplicatively). It’s not exactly the rocketship of prosperity that the supply-siders promised and predicted.

I know, I know–it’s because the europeans followed suit, radically cutting taxes. Except they didn’t–at least not the total tax burden. They’re at about 36% of GDP. We’re at 27%.

And in any case it’s hard to square that argument with the position that Europe still consists of a bunch of bleeding-heart, anti-growth socialist welfare states.

It looks to me like all the mainstream economists (plus me with my little spreadsheet full of OECD data–see post) are right: in developed countries with taxes in the 25-45% of GDP range, government size in and of itself has little if any effect on growth.