WASHINGTON (MarketWatch) — Some 30 years after the Republican Party was smitten by supply-side economics, the Grand Old Party remains faithful to the creed, even if history hasn’t been kind to the idea that tax cuts and deregulation alone will lead to a wondrous new era of American prosperity.

Mitt Romney’s economic platform is little changed from George W. Bush’s or Ronald Reagan’s. It’s sparse on details, likely because it can be summed up in four powerful words: Government IS the problem. Like Reagan and Bush, Romney says he’s positive that the American economy would thrive if we’d only liberate businesses (that is, “job creators”) from pesky regulations and onerous taxes.

Marginal tax rates have been lowered three times in the past 30 or so years, and increased twice, with little impact on the level of investment in the economy.

Read Romney’s campaign literature, or skim a pro-Romney letter written by four economists and you’ll see how much supply-side rhetoric still dominates Republican policy even though it hasn’t delivered on its promises. Read the white paper by Glenn Hubbard, Greg Mankiw, John Taylor, and Kevin Hassett.

In the past 31 years, we’ve had three major supply-side tax cuts, which had the effect of reducing the top marginal rate from 70% to as low as 28%. The top rate is currently 35%, and it could go up to 40.9% if President Barack Obama gets his way.

If the supply-siders were right, then investment should have boomed when tax rates were low, and faltered when Presidents George H.W. Bush and Bill Clinton raised the top marginal rate in the early 1990s.

But that didn’t happen: Investment increased in the mid-1980s as the economy improved, then faded even as tax rates were lowered further. Investment boomed after the Bush-Clinton tax hikes, and increased again after the tax cuts early in President George W. Bush’s first term.

Is it cyclical or structural?

It appears investment is driven largely by economic forces, not by marginal tax rates as claimed by the supply-siders. The tax rate isn’t totally irrelevant, but it’s not that important either.

What do we mean by “supply-side” economics? Supply-side economists put a primacy on the production of goods and services, rather than on demand for those goods and services. To them, economic imbalances, high unemployment and tepid growth are due to barriers that stop producers from hiring, investing and growing their businesses.

By contrast, Keynesian economics puts the blame for short-term fluctuations in the economy on disruptions in demand, although even Keynesians acknowledge the importance of supply-side factors in the longer run.

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Supply-siders say our economy’s problems are more structural than cyclical. Poorly designed tax and regulatory policies prevent capital and labor from being deployed efficiently. Unemployment persists because available would-be workers don’t have the skills that producers need. High tax rates discourage both work and saving, thus reducing the economy’s overall potential output. Taxes on capital income, at any level, reduce incentives to invest in productive enterprises.

Such ideas may have had a certain appeal back in the 1980s, when the top marginal income tax rate was 70%, and vast sectors of the economy (communications, transportation, financials) were tightly regulated by Washington. But now, after years of tax cutting and deregulating, we know better. And least, we should know better. Not all problems in the economy can be fixed with supply-side solutions.

Especially short-term problems like the ones we are now facing.

Trying to see the world through the lens of supply-side economics is looking at it in a fun-house mirror; everything’s backwards and distorted.

For instance, how can anyone argue that high taxes and massive regulations are the cause of our depression? Tax rates remain relatively low, historically and in comparison with our trading rivals. Companies have rarely been more profitable, and the share of income going to the uber-rich has rarely been higher.

The regulatory structure has changed very little, and there’s ample evidence that in some areas — banking, for instance — it was the lack of adequate regulation, enforcement and prosecution that caused our economic downturn.

Supply-siders argue that unemployment persists because the unemployed lack the skills needed. But they ignore the fact that even the highly educated are having trouble finding work. The unemployment rate has roughly doubled for college graduates, just as it has roughly doubled for high school drop-outs.

Desperately seeking demand

Anyone with a clear view of the economy can see that our immediate problems are rooted in lack of demand, not a lack of supply: The consumer sector took a huge hit to its wealth and income, and taking on debt no longer seems wise. It’s no surprise that consumption is weak.

The housing sector is depressed because of too much supply. Capital spending by businesses surged just after the recession ended, but has slowed recently because there’s little reason to expand a business if there are few new customers. Exporters are finding slower growth in global markets. Government spending has declined for eight quarters in a row.

In other words, demand is weak.

We can make up entertaining stories about how all these problems are really the result of too much government interference, but why bother? The obvious answer — lack of demand — fits the evidence much better.

The Republican Party has a lot invested in the supply-side story. Policies that favored a small but powerful elite were sold to the voters with an explicit promise that the benefits would trickle down to the rest of us. Cut taxes on the job creators, we were told, and they’ll give you a job.

Well? We’re still waiting for the trickle.