Apocalypse revisited.

The stock market is back to the level it had reached before the 1987 Crash, and there is nothing particularly cloudy in the economic outlook as far as the eye can see. Yet, when the stock market crashed in October 1987, the perennial critics of supply-side policies could barely contain their glee. Peter Kilborn of the New York Times confidently announced that "the Reagan revolution, if it ever really began, has come and gone," and the Times began running, as a regular feature, charts comparing stock prices in 1987 with those in 1929. (This has been discontinued, for obvious reasons.) Alfred Malabre of the Wall Street Journal thought "the problem seems greater" than in 1929, because there were no "twin deficits" back then, and Latin American defaults were less important. Alan Murray, another Wall Street Journal specialist in gloom, figured the Federal Reserve faced an impossible dilemma: "If the Fed doesn't do enough to bolster the economy, the stock-market collapse could quickly drag down other areas of the economy. And if the Fed primes the pump with too much money, it risks collapse of the dollar and renewed fears of inflation." The reason for this narrow choice between inflation and recession, Murray explained, was that " President Reagan ... has stubbornly refused all year to even consider raising taxes." Higher tax rates, as all Washington reporters will tell you, are very good for the economy.

Wall Street economists fed the press with equally erratic gloom. In his Journal of Commerce column of February 1988, Erich Heinemann of Ladenburg, Thalmann wrote "Curtain Is Falling on Growth." Yet only four months later, Heinemann followed by warning of a roaring boom, so "inflation will come back with a vengeance." Indeed, the same journalists and economists who had been talking about another Great Depression once again switched, as

they had in 1984, to worrying about an " overheated" economy, which would push inflation sky high. A couple of big increases in producer prices early in 1989 fed this new inflation seare, even as the rising dollar and falling commodity prices were instead predicting the obvious moderation of inflation in recent months. Undaunted by the fact that inflation has come down smartly while the economy grew at a 3.2 per cent pace in the first half of this year, confused Keynesians still continue to blame inflation on too much employment, rather than too much money. Louis Uchitelle of the New York Times recently wrote that "the gross national product must be kept to an expansion rate of 2 per cent or less. More growth could result in inflationary shortages." Yet Uchitelle also noted that "Just one month ago, most economic forecasters employed by banks and brokerage houses were warning of an imminent recession; now they are celebrating continued growth." Indeed. And while we are celebrating what may well turn out to be the longest and strongest economic expansion this country has ever enjoyed, let us take a moment to give credit to a few supply-side heretics who always said lower tax rates and a non-inflationary monetary policy would have precisely that affect. If the economy should ever stumble into recession at some point during the next decade or two, though, we would not be at all surprised to see it blamed on "the ill-fated gamble of Reaganomics."