Bueller…Bueller… 
Posted on Sunday, April 15th, 2007 at 1:37 am
Today we have a similar debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. ‘Voodoo’ economics.Ben Stein, as Economics Teacher
Ferris Bueller’s Day Off
An Old Broad, suggesting Tax Cuts Work, and AsianBlogger, reprinting the entire article, point to a Wall Street Journal Op/Ed from fated Republican presidential candidate Fred Thomson entitled “Case Closed: Tax Cuts Mean Growth“.
I would suggest the case, however, is far from closed. Mr. Thompson, I believe, takes several undeserved liberties.
Economists, particularly pre-Bush-II conservatives, were keenly aware of Laffer curve’s suggestion that disparate tax rates can, in fact, produce the same revenue (after all, the first reported sketching of the Curve, on a cocktail napkin no less, was witnessed by both Dick Cheney and Donald Rumsfeld in 1974), and given the appropirate conditions, the lower rate is preferable, as it spurs production (hence, the “supply” in “supply side economics”. The italics are crucial here.
Conventional suppy-siders would stress that tax cuts should be reserved for times of surplus, and further, tax cuts should be matched by offsetting cuts in federal spending. Though he started his term with a surplus from Clinton, Bush quickly saw that evaporate, largely due to tax cuts, and spending increased. EconomistsView.typepad.com puts it quite succinctly, stating “the fact that revenue increases following a tax cut tells you nothing about tax cuts per se, it simply confirms that deficit spending is expansionary.” So was it the tax cuts, or the increase in deficit spending that spawned the revenue increase? Good question, and one that deserves further explanation.
Of course, Supply Side, or Trickle-down, or Voodoo Economics has taken its hits. I like the horse-and-sparrow analogy in describing it by John Kenneth Galbraith:
“if you feed enough oats to the horse, some will pass through to feed the sparrows”.
The Good Society: The Humane Agenda.
Speaking of horses, if you’d like it straight from his mouth (rather than the other end), read Laffer’s The Laffer Curve: Past, Present, and Future.
For extra credit, check out his address to the Heritage Foundation this past November. But conservatives be forewarned: if you truly want to toe the party line (and hook and sinker for that matter), be prepared to alter your positions on some matters, such as immigration reform.
Liberals: just be prepared to be p***** off.
Finally, as for Mr. Thompson’s parting comment suggesting that opponents to tax cuts for the wealthy are simply in it “for political reasons”, I’d counter by recommending Nobel Prize winning (2001) economist Joseph Stiglitz’ “The Parties’ Flip-Flops on Deficit Spending: Economics or Politics?“, an excellent primer on deficit spending (a bit long, but very approachable).
