Jack Kemp: American Hero



[Peter
Brimelow
has questions


here
]

Hon. Jack French Kemp

passed away on May 2 at 73 years of age.
Kemp
won many battles, but lost his fight with cancer.

Jack F. Kemp had an improbable
career. A bottom-tier professional football pick
(203rd) who was cut from five teams, Kemp became a

seven-time all-star quarterback
and

led the Buffalo Bills
to two league
championships.

As a junior member of the
Republican minority in the House of Representatives,
Kemp led a revolution in economic policy.

I went to work for Jack in the
summer of 1975, the first year of his third term in
the House. I had been interviewing the Ford White
House, which wanted to do something about capital
formation but could not find the courage or
determination to take on the issue.

Capital formation was a
difficult issue. Keynesian economists believed that
capital formation was driven by consumer demand. If
more capital was needed, the answer was to rev up
consumer demand with larger budget deficits, and
companies would invest to meet the increased demand.

Conservative economists and
Wall Street believed that investment was determined
by the interest rate. According to their theory,
bigger deficits would drive up the interest rate and
curtail investment. Conservatives and Wall Street
wanted balanced budgets.

Neither economists nor Congress
appreciated that capital formation was an important
issue. Inflation had reared its ugly head and was
destroying the real value of the depreciation
allowances. Depreciation was drawn out over so many
years that companies could not recover the value of
their capital investment.

Obviously, Congress was not
going to cut any spending programs to make room for
faster depreciation. Thus, the Ford White House
understood that capital formation would have no
support from liberals or conservatives. Moreover,
any such initiative would be demonized as handouts
to business and
"the rich."
The result would be political damage for President
Ford without any gain in capital formation, a
Quixotic campaign.

The White House passed me off
to Jack Kemp. When I arrived, he already had a
capital formation bill, the work of supply-side
economist,
Dr.
Norman Ture.

Kemp`s capital formation bill
was renamed the Jobs Creation Act. Among its
provisions was
"a reduction
of the income tax rate graduation"
, that is, a
reduction in marginal tax rates.

Although a good speaker, Jack
was in danger of opponents on both sides of the
political aisle defining his issue as
"trickle-down economics" or "voodoo
economics
"
before he could get the new point
across. He asked me to provide an explanation that
would raise the awareness of his colleagues and the
general public of the problem and the solution.

As this was before
Jude Wanniski
and the
Wall Street
Journal
had discovered us, I wrote an article
for Kemp that appeared in the Sunday
Washington Star on September 21, 1975. The article was a fundamental
challenge to Keynesian policymakers, because it
emphasized that fiscal policy works by affecting
incentives rather than consumer demand. The article
was the opening shot of
a revolution in economic policy,

 and it
established Kemp as the leader.

Keynesian policymakers
understood fiscal policy as a tool for managing
demand. If unemployment was the problem, a tax cut
or an increase in government spending would increase
demand and, thereby, employment. If inflation was
the problem, a tax hike or a surplus in the
government`s budget would reduce demand and cool
down inflation.

Supply-side economics added to
the knowledge of economists by establishing that
fiscal policy affects supply. Marginal tax rates
determine important relative prices that govern the
choice at the margin between work and leisure and
saving and consumption.

High marginal tax rates make
leisure cheap in terms of foregone current income,
and they make current consumption cheap in terms of
foregone future income. Thus, the higher the tax
rates, the less the supply of productive inputs.

Low tax rates make leisure
expensive in terms of foregone current income, and
they make current consumption expensive in terms of
foregone future income. The lower the tax rates, the
greater the supply of productive inputs.

With their fixation on managing
demand, Keynesian policymakers did not understand
that the combination of high demand and high tax
rates resulted in stagflation.

Pumping up consumer demand
while high tax rates restricted the supply of
productive inputs resulted in demand increasing
relative to supply. The result was rising prices.

Keynesian policymakers believed
that economic growth had to be
"paid for"
by accepting higher inflation. But the trade-off
worsened and finally broke down.

Milton Friedman
summed up the demise of the
trade-off between employment and inflation with the
phrase, "more
inflation, more unemployment."

The breakdown of the Keynesian
model opened the door to the supply-side revolution.

Kemp`s Jobs Creation Act
addressed the problem. However, as a collection of
capital formation measures, it appeared
business-oriented, which did not open new political
space to Republicans. In a competitive political
environment in which capital formation was not
generally perceived as a problem, the Jobs Creation
Act was open to demonization for expanding
"loopholes
for special interests."

Kemp, being a natural leader,
had already shifted the focus from capital formation
to jobs. The new congressional budget process
provided the forum from which to challenge the
demand-management policy. I moved from Kemp`s staff
to become the first chief economist, Republican
staff, House Budget Committee, and the Kemp-Roth
bill was born.

It took courage for Kemp to
take on the economic establishment. He succeeded
because he was intelligent and sincere. Supply-side
economics was not a political gimmick. It was the
answer to an economic policy that had put brakes on
employment but not on inflation. Americans had given
up hope that the economy could grow without rising
inflation. Kemp led an economic restoration that
lasted until offshoring undermined American job
growth.

Working with Jack was a
pleasure. He was not egocentric or self-important.
He was a colleague rather than a boss. He didn`t
ride herd. He was forgiving and loyal to his aides.
He could laugh at himself. He believed in persuasion
and relied on good will.

Leaders of Jack`s quality do
not often appear. We should all mourn his passing.

Paul Craig Roberts [email
him
] was Assistant
Secretary of the Treasury during President Reagan`s
first term.  He was Associate Editor of the
Wall
Street Journal.  He has held numerous academic
appointments, including the William E. Simon Chair,
Center for Strategic and International Studies,
Georgetown University, and Senior Research Fellow,
Hoover Institution, Stanford University. He was awarded
the Legion of Honor by French President Francois
Mitterrand. He is the author of


Supply-Side Revolution : An Insider`s Account of
Policymaking in Washington
;
 Alienation
and the Soviet Economy
and

Meltdown: Inside the Soviet Economy
,
and is the co-author
with Lawrence M. Stratton of


The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice
. Click

here
for Peter
Brimelow`s
Forbes Magazine interview with Roberts
about the recent epidemic of prosecutorial misconduct.