I wrote the following some time ago and thought it needed some dusting off.
* * *
-=[ Of Laffer Curves, Cults & Crackpots]=-
What we might call, by way of eminence, the Dismal Science.
-- Thomas Carlyle (1795–1881) Scottish philosopher on economics
One day, spurred by a comment left on my blog, I called my friend who works on
Anyway, I’m not very bright when it comes to economics and finances, I believe my ex-wife is correct in her observation that I should never be allowed to handle my own finances, let alone talk about them. Whenever I have a question on economics, I always call my
We met at a popular eatery near
I promised to be quiet and he began to tell me about this mysterious, all-knowing talisman -- the Laffer Curve.
Now, keep in kind my friend, though a conservative, believes supply-side economics to be the biggest con ever perpetrated on the American people. He’s an “old school” republican: republicans that concerned themselves mostly about such things as deficits, inflation, and excessive spending; republicans who didn’t care much about cutting taxes and were quite willing (like Eisenhower and Ford) to raise taxes in order to balance the budget.
I laugh and and my friend assures me that such men existed, but that they have become an endangered species (extinct?) as the GOP has essentially been hijacked by a cult.
“All sects have their founding myths,” my friend assured me, and the cult in question can trace its roots to a Holy Trio (like in Christianity!) that met in
Wanniski had no formal training in economics, but he had taken Laffer as his mentor. His choice of tutelage was curious. Laffer had been an economics professor at the
When his calculations turned out to be horribly wrong, he became the laughingstock of
At this point, I gave my friend a patented Eddie ::blank stare::
My friend shrugged as if to say that no one can ever understand the underpinnings of human motivation.
In 1972, Wanniski had an epiphany that led him to believe Laffer was a brilliant economist who had developed a blinding new insight that would turn the economic establishment on its head. Wanniski and Laffer believed that it was possible to simultaneously expand the economy and hold down inflation by cutting taxes, especially taxes for the wealthy. Respectable economists -- even conservative ones -- considered this laughable. Nevertheless, Wanniski was convinced of its truth. He promoted the doctrine through his high perch on the respected (and uber -conservative) Wall St. Journal Editorial page and in articles in the equally conservative Public Interest (published by the Godfather of the NeoConservative Movement, Irving Kristol). Both were highly influential media outlets.
Still, Wanniski’s new doctrine, later to be called supply-side economics, failed to catch on beyond a few loyal devotees.
Then came that fateful Holy Night. Wanniski and Laffer were working hard with little success to explain the “new” theory to Cheney. At this point, Laffer pulled out a cocktail napkin and drew a parabola-shaped curve on it. The premise of the curve was simple. If the government sets a tax rate of zero, there’s no revenue. And if the government sets the tax rate of 100 percent, the government will also receive zero tax revenue, since there will be no incentive for anyone to earn any income. Between these two points -- zero taxes and zero revenue, 100 percent taxes and zero revenue -- Laffer drew an arc (“The Laffer Curve”). The arc suggested that at higher levels of taxation, reducing the rate would produce more revenue for the government.
At this point, Cheney could have raised several questions. First, he could have noted that the Laffer Curve was not... ummm ... correct? Yes, a zero tax rate would obviously produce zero revenue, but the assumption that a 100 percent tax rate would produce zero revenue was categorically false. I mean, c’mon, I tell my friend, Cheney had to be familiar with communist
My friend sighed, patiently trudging on. While he assures me he’s no socialist, the soviet revenue scheme may not have been the model of efficiency, but it still managed to collect enough revenue to maintain an enormous military, enslave half of
But Cheney didn’t do any of these things. Perhaps, in looking back, like most conservatives, he likes theories that confirm his ideological stances. You can almost picture Donald Rumsfeld drawing a Laffer Curve showing that only a small number of troops would be needed to occupy
I digress, but whatever the case, Cheney saw the light and became an immediate convert. For Cheney, the Laffer Curve provided an easy to understand frame for the messianic power of tax cuts. The significance of that Holy Night wasn’t that Cheney was converted, it was the creation of a powerful symbol with which to spread the gospel of supply-side economics. The mantra was irresistible:
Lower taxes! Higher revenues!
The Laffer Curve swept through the republican ranks like wildfire. Kristol would write later, in almost theological terms, of the conversion of Ronald Reagan. And in that way, the totally untested and utterly ideological notion that cutting taxes for the rich is always a good idea came to life. Call it an economic Immaculate Conception.
That is how what Bush the Elder rightfully called “Voodoo Economics” came to being and it would go on to dominate
So, my friends, the next time one of the goober zombies start blurting crap about the Laffer Curve, or how tax breaks for the rich is a good idea, please know it was something that was literally pulled out of a failed economics professor’s hairy anus.
There’s more to this story, but this is already too long, but I love stories -- especially myths. More to come...