Hayek was not a big fan of “supply side” economics

The growth of wealth comes via the accumulation of capital — i.e. ever more productive and mutually coordinated production goods, created by skilled and intelligent workers and entrepreneurs.

It doesn’t come via the accumulation of debt or via the consumption of the seed corn.

[UPDATE: see now related postings by Russ Roberts and Arnold Kling. Note well that most of the "supply siders" were vulgar Keynesians of one sort or another.]

Milton Friedman had no capital in his economics, so he believed that paying your way with debt was as good as paying your way with taxes. Somehow even the basic math of compound interest seemed to have escaped his attention.

The problems of “supply side” economics didn’t escape Hayek’s attention.

A picture is worth a thousand words, and a graph is often worth as much as a picture. Ask yourself what these graphs are saying. I’d suggest that are not saying “in long run we are all dead”. No, they are saying, “in the long run we are all bankrupt”– most especially our children and grandchildren. Keynes, of course, had no children, so these problems are yours, not his:

Friedman believed that the debt burden would — at some point — “starve the beast”. Even in the 1980s Hayek pointed out that is was failing to do so.

Former supply sider Bruce Bartlett has finally seen the Hayekian light, after all these years, and he’s now asking, what happens when what can’t go on forever doesn’t? Arnold Kling is asking similar questions.

More later.

UPDATE: There’s a great blog tracking articles on supply side economics here.

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The most intelligent defender of capitalism in the modern period is Friedrich Hayek. — Irving Kristol

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