Lessons for Trump from Supply-Sider JFK

When we link the term "supply-side economics" with a U.S. president, most people think of Ronald Reagan. And rightly so. But make no mistake, Reagan wasn't America's first or lone supply-side president.

In fact, it can be argued - and it is in a new book by economist Larry Kudlow and historian Brian Domitrovic titled JFK and the Reagan Revolution: A Secret History of American Prosperity (Portfolio, 256 pages, 2016) - that Reagan learned key lessons about pro-growth tax policy from one of his supply-side predecessors. As much as the left-wing Kennedy clan of recent times hates to admit it, President John F. Kennedy, a Democrat, turned out to be a supply-sider.

And as President-elect Donald Trump continues to fill Cabinet posts and looks forward to shaping public policy over the next four years, he certainly would benefit from reading this valuable history of economic thought and policymaking.

Interestingly, some parallels exist between Kennedy and Trump entering the Oval Office. During the campaign, Trump spoke about the poor state of the economy under his predecessor, President Obama, and the need for increased economic and employment growth, that is, to "make America great again." Likewise, Kennedy campaigned on the idea of accelerating economic growth - to "get this country moving again" - after recessions were far too frequent occurrences under his predecessor, President Eisenhower. As the authors noted, "Yes, when Kennedy entered office, Americans had spent 30 percent of the previous eight years in recession."

Kennedy, however, had no clear idea or plan for getting the economy moving. As for President-elect Trump, his background shows that he has changed positions on assorted policy issues over the years, and comes into office with an agenda that offers potential positives on taxes and regulation, for example, and possible negatives on trade.

Selecting the right people to key jobs mattered in the case of JFK, and that will very likely be the case under Trump as well. JFK, unfortunately, packed his Council of Economic Advisers with Keynesians, who pushed a policy combination featuring loose money, high taxes (with temporary demand-side tax cuts during recession), and government spending on infrastructure and education. Of course, that didn't work, just as it has not worked over the past near-nine years.

But JFK also appointed Douglas Dillon as Treasury secretary. Dillon, armed with work from a young economist at the time, won Kennedy over to the supply-side policy mix of having the Fed focus on price stability and a sound dollar, while permanent, substantial marginal income tax relief would enhance incentives for risk taking. That young economist was Robert Mundell, who would go on to win the Nobel Prize in Economics and influence later supply-side policymakers, namely, Congressman Jack Kemp and President Ronald Reagan.

Kudlow and Domitrovic serve up a fascinating story of Kennedy's supply-side conversion; the tremendous economic benefits, such as faster economic and job growth, accompanying the sizeable Kennedy tax cuts that were completed just after his assassination; and how JFK laid the groundwork for the Reagan supply-side revolution - again, sizable tax relief, monetary policy refocused on price stability, along with substantive regulatory relief - that came in the 1980s, which transformed a U.S. economy stuck in stagflation into a dynamic, high-growth, low-inflation economy.

It's also worth noting that both JFK and Reagan were free traders who for the most part reduced governmental barriers to trade - another supply-side tenet.

In the end, the JFK and Reagan policy mix of lower marginal tax rates, sound money, freer trade, and, at least in Reagan's case, deregulation worked brilliantly to help spur economic growth, entrepreneurship and job creation. And if given a chance, it most certainly will do so again. President-elect Trump has an opportunity to become the next successful supply-sider in the White House. He can do so by picking the right people for key economic policy jobs, and taking to heart the lessons offered by Kudlow and Domitrovic in their insightful JFK and the Reagan Revolution.