Relearning the lessons of supply-side economics is thus essential for restoring America’s economic dynamism. Yet today’s obstacles come in distinct forms. Government is less likely to regulate prices but more inclined to micromanage the everyday activities of citizens. The Federal Reserve is more aware of inflationary dangers but also more committed to directing credit and financing bailouts. Top marginal tax rates at the federal level are lower, but the government has hugely expanded deficit spending. Transfers are no longer confined to the disadvantaged but now creep far up the income ladder and are more concentrated on health care and the elderly.

A new free-market agenda must grapple with these fundamental changes in government and the economy. While embracing the insights of supply-side economics, it must learn how to apply them to a different age. Previous reforms—among them, the broad deregulation of the late 1970s and 1980s, the Fed’s fight against inflation in the early 1980s, the Tax Reform Act of 1986, and the 1996 welfare-reform legislation—brought immense benefits to average Americans. New reforms can deliver similar benefits—if they address the new problems we face.