For those opposed to government intervention, a special place is reserved for the role of market incentives. Supply-side economics of the 1980s was based largely on the belief that taxes sullied these pure incentives and resulted in a stark reduction of productive activity. But this notion has been around for a long time, or at least since 1956. In that year, an address to the National Association of Manufacturers claimed that the prevailing tax structure "destroys the incentive of people to work . . . It makes it increasingly difficult, if not impossible, for people to save."

In response, Galbraith pointed out the obvious (if not inconvenient) fact that the tax structure had changed little for two decades; and yet, the country had enjoyed "years of rapid economic growth." The disincentives associated with the tax system were devastating in theory, but fortunately, nearly invisible in reality. Savings were not particularly low...