A few years ago I was talking to a well-known supply-sider (this was before I believed any of it). I asked what it would take for the supply-side revolution to be considered a success? He said it wasn't going to be measured by how many people called themselves supply-siders, but in how it changes orthodox economic thought.
The supply-side ideas were never a new branch of economics. They had their foundation in classical economics. It was the economics of those from the far left like Karl Marx to the far right like Adam Smith. The roots can even be traced all the way back to a 14th century Arab philosopher, ibn Khaldun, who Reagan liked to quote, such as in a 1986 speech:
The effort is designed to be revenue-neutral, so if a large number of people and businesses are paying less, some people and businesses will be paying more. But those whose taxload will increase are those who have made extensive use of tax shelters and other schemes and have not really been paying proportionately a fair share of the tax burden. However, lowering the rates does not translate as tax shift. Lowering the rates and broadening the base will actually add to government revenue. As far back as the 14th century, a Moslem philosopher named ibn-Khaldun observed, "... At the beginning of a dynasty taxation yields a large revenue from small assessments. At the end of the dynasty taxation yields a small revenue from large assessments."
Jude Wanniski, one of the early supply-siders, has expressed amazement at ibn Khladun's clear thought and how he could have never heard of him until Reagan had mentioned the philosopher, historian, and politician.
However, it now looks like there has some supply-side success at changing orthodoxy. A recent survey of economist explicity names the supply-siders as one reason minds are changing.
One of the reasons I was given to not look for people calling themselves supply-siders is because of how it came about. In 1974 Robert Mundell gave a presentation on the coming great inflation. Art Laffer introduced Jude Wanniski, who at that time worked for the
Wall Street Journal, to Mundell, and another ally was found in Jack Kemp. In 1976 Herb Stein pejoratively named the group supply-side fiscalists. The name didn't quite capture the nature of their ideas, as it left out the monetary side, so Wanniski coopted the term, except changing it to supply-side economists.
They saw an economic melt down coming. In May 1974 Mundell predicted an unemployment rate of 8% for the next year unless a $10 billion tax cut was enacted. Unemployment would get worse, and the size of the relief needed would grow until something was done. By the end of 1974 Mundell was advocating a $30 billion tax cut. He saw this and cutting back on money supply growth as the only ways to bring down the rate of inflation. Their was no time go change the minds of academics first, then let that slowly change policy. They needed to change the mind of policymakers first, and then they could worry about academia.
In 1999 the Nobel Prize was awarded to Mundell (yeah, the Bank of Sweden Prize in Economics Science in memory blah blah). While given to him for his work in optimal currency zones, it is well known that the committe looks at the history of a person's work, and this was taken as a big step in the acceptance of supply-side views among the academics.
Some of the first signs of academic acceptance came from Robert Lucas. After dismissing the supply-side claims, in a 1990 article he started coming around.
When I left graduate school, in 1963, I believed that the single most desirable change in the U.S. tax structure would be the taxation of capital gains as ordinary income. I now believe that neither capital gains nor any of the income from capital should be taxed at all. Supply side economics [is] a term associated in the United States with extravagant claims about the effects of changes in the tax structure on capital accumulation. The analysis I have reviewed supports these claims: Under what I view as conservative assumptions, I estimated that eliminating capital income taxation would increase the capital stock by about 35 percent. The supply side economists have delivered the largest genuinely free lunch that I have seen in 25 years in this business, and I believe that we would have a better society if we followed their advice.
Following winning the Prize in 1995, in the 2003 presidential address of the American Economic Association, Lucas broadened his public support of supply-side policy options.
There remain important gains in welfare from better fiscal policies, but I argue that these are gains from providing people with better incentives to work and to save, not from better fine tuning of spending flows. Taking U.S. performance over the past 50 years as a benchmark, the potential for welfare gains from better long-run, supply side policies exceeds by far (empahsis in original) the potential from further improvements in short-run demand management. [...]
The potential gains from improved stabilization policies are on the order of hundredths of a percent of consumption, perhaps two orders of magnitude smaller than the potential benefits of available "supply-side" fiscal reforms.
Recently a survey of economists was released that showed more acceptance of suppy-side ideas. Dan Fuller and Doris Geide-Stevenson sent a survey to a sample of a thousand economists and received 30.4% back. This was an attempt to follow up on two other surveys, the original in 1976 and followed up in 1992. They found evidence of a shift towards the supply-side.
The dynamics of opinion in macroeconomics is particularly interesting. Specifically, we found evidence of a shift toward more agreement with monetarist and new classical or supply-side-based propositions. That is, our survey found more agreement with the propositions of the long-run invariance of GDP (Gross Domestic Product) to changes in aggregate demand (10) and of inflation as primarily a monetary phenomenon (19). There was less agreement with propositions of a short-run Phillips curve effect (12) and of the stimulative impact of fiscal policy on an underemployed economy (15). We found more agreement with the proposition that lower marginal tax rates increased work effort (22) but no significant change in the proposition that reductions in the tax on capital gains promoted economic growth (23).