Jude Wanniski and the Truth About Supply-side Economics

An era ended on Aug. 30, when Jude Wanniski, who did more than anyone else to popularize supply-side economics, died at age 69.

I met Jude in early 1977, after I had gone to work for Jack Kemp. Jude was an editorial writer at The Wall Street Journal, but he was much more than that. He was an entrepreneur in the purest sense of the word — an entrepreneur of ideas.

The obituaries said that Jude coined the term “supply-side economics,” but this is not exactly correct. The late economist Herb Stein had come up with the term “supply-side fiscalists” as one of derision for those, like Jude, who thought it was a good idea to cut taxes even in the midst of massive budget deficits and double-digit inflation. But just as Karl Marx coined the term “capitalist” in order to attack those who favored the free market, supply-siders adopted their opponent’s term to describe themselves.

Jude may have been the one who converted “supply-side fiscalists” into “supply-side economics,” but that was not his most significant achievement. Jude’s real achievement was to recognize the importance of and political potential for the ideas that underlay supply-side economics. The originator — at least in the modern sense — was economist Robert Mundell, later a winner of the Nobel Prize in economics, who first articulated them in 1971.

At the time, stagflation was the world’s biggest problem. Most economists said that the most important thing to fix this scourge of inflation and slow growth was to reduce the budget deficit — by raising taxes, if necessary. Mundell said this was nonsense. Inflation had nothing to do with budget deficits, he said, but was solely the result of an easy money policy by the Federal Reserve. And slow growth was primarily caused by excessive tax rates. So raising taxes to balance the budget was worse than doing nothing. It would make the problem worse.

Arthur Laffer was a colleague of Mundell’s at the University of Chicago. In 1974, Laffer organized a conference by the American Enterprise Institute at which Mundell explained his tight-money-and-tax-cuts prescription for stagflation. Jude was in the audience and immediately recognized its significance. He wrote it up in a Wall Street Journal article on Dec. 11, 1974.

Typically, Jude was not content simply to report a new idea. He proselytized for it. He was responsible for bringing supply-side economics to the attention of Bob Bartley, then-editorial page editor of The Wall Street Journal; Irving Kristol, a New York University professor affiliated with AEI; and Kemp, who was then a congressman from Buffalo, N.Y.

Bartley made the Journal editorial page the most important voice for supply-side economics in the United States. Kristol arranged for Jude to spend a year at AEI, where he wrote the first book on supply-side economics, “The Way the World Works,” published in 1978. Kemp introduced the first legislation embodying supply-side ideas and subsequently became its best-known advocate.

Jude also tried to enlist President Gerald Ford as an ally and even arranged meetings with Dick Cheney and Donald Rumsfeld, then high-level officials in the Ford administration. And in 1978, Jude helped get Jeff Bell to run for the Senate from New Jersey on a supply-side platform. When Bell knocked off longtime Sen. Clifford Case in the Republican primary, it was an important indication of the political potential of supply-side economics.

Jude was so enthusiastic about Bell’s campaign that he was caught by a Wall Street Journal executive handing out campaign literature at a New Jersey train station. He was told either to curb his political activities or find a new job. Jude left the Journal and became an independent economic consultant.

I worked for Jude’s company for a while in the 1980s. I always suspected that many of his clients hired him less for his investment advice than as a way of supporting his supply-side evangelism. They knew that Jude didn’t just write about things like cutting the capital gains tax. He was in Washington, buttonholing congressmen and senators to enact it.

Unfortunately, Jude put the same effort into advocating some bad ideas as good ones. In recent years, he became convinced that Saddam Hussein was innocent of the charges against him, making him look ridiculous even to those who opposed the war in Iraq as strongly as he did. Jude also maintained a close relationship with Louis Farrakhan of the Nation of Islam, despite his frequent anti-Semitic ravings.

In the end, Jude will be remembered as someone who saw a good idea in supply-side economics and knew what to do with it. I liken him to Ray Kroc, who knew a good idea when he saw the McDonald Brothers restaurant in San Bernardino, Calif., and built it into the first fast-food chain. It’s too bad that Jude didn’t quit while he was ahead.