" It remains a mystery why Reagan by-passed thousands of qualified conservative economists for the council of a few supply-siders. Perhaps the most likely reason was practical: the supply-siders told Reagan what he wanted to hear. To try to explain why I will devote a paragraph to the economic and political problems that Reagan faced in 1980. Until the 60s, there had been a tradeoff between inflation and unemployment. Government could achieve low unemployment by accepting high inflation; or it could achieve low inflation by accepting high unemployment. Earlier presidents had opted for low unemployment, which the Federal Reserve accomplished by expanding the money supply, thus giving people more money to spend. Extra spending means extra jobs. However, Milton Friedman and others pointed out that business people would eventually come to expect these inflationary increases, and they would simply compensate for them by raising their prices by the anticipated amount. This would not only negate the job-creating effect that more money in circulation would bring, but also make inflation worse. Eventually, they predicted, inflation would shoot up and then so would unemployment, breaking the tradeoff between them, and forming a twin monster that Paul Samuelson dubbed "stagflation." And, true enough, this is precisely what happened in the 70s. It seemed as though Keynesian economics was not entirely working the way it was supposed to. All of this economic turmoil led to the acceptance of the supply side doctrine.Economists in the late 70s were at a loss for a cure to this seeming failure of Keynesian Economics. To fight high inflation, governments traditionally raise interest rates and cut government spending. To fight high unemployment, they do the opposite. Thus, they were damned if they did and damned if they did not. Then the supply siders came along.The supply-siders told Reagan they had a solution. The Laffer Curve purported to...
