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essay by laffer on supply-side economics [1]
This essay is very well argued and clear, as long
as you can follow numbers.
“Summary
• This paper serves as a response to a recent The New Republic
article by Jonathan Chait which criticizes the supply side economics
movement and lays out the typical redistributionist’s case
for raising taxes on the rich.
• While the article refers to supply siders as “wingnuts,”
the tenets of supply-side economics—low taxes, sound money,
free trade, reduced regulations, etc.—have been adopted (successfully,
I might add) in the U.S. and across the globe.
• The best way to help the poor is not to make the rich poorer,
but to make the poor richer. All Americans as a whole have gotten
richer as a result of pro-growth supply-side policies. The economic
and social gains of the past 25 years—across class, race and
gender lines—speak for themselves. The irony is that many
of the policies promoted by the Left would hurt the very classes
of people whom the Left professes to champion.”
“Christina and David Romer find that the effect on real GDP
of a tax increase of 1% of GDP is strongly negative both in the
short run and over time. The effect on GDP of a 1% tax increase
is consistently negative and increasing in the damage it does over
time, finally reaching a maximum negative impact after 10 quarters
at which point real GDP is reduced by 3%. Yikes! Given that both
Christina and David Romer are faculty members at the University
of California, Berkeley, we can be pretty sure that the results
have not been artificially inflated, if you know what I mean. Now
this is academics, not political rhetoric. Do you really want to
advocate tax increases, Chait?
Deficits are a consequence of both tax and spending policies. Sometimes
deficits are good, and sometimes they are bad. If someone could
borrow at 3% and, at equal risk, lend at 10%, that person should
borrow as much as he could get his hands on. But, if the numbers
are reversed, and he could borrow at 10% and only invest at 3%,
then he shouldn’t borrow anything. How much an individual
or a country borrows depends on the spread. Deficits are neither
bad nor good per se—it’s how the proceeds from borrowing
are used that matters.” [p.5]
Laffer includes an excellent quote from John Maynard
Keynes:
“When, on the contrary, I show, a little elaborately, as
in the ensuing chapter, that to create wealth will increase the
national income and that a large proportion of any increase in the
national income will accrue to an Exchequer, amongst whose largest
outgoings is the payment of incomes to those who are unemployed
and whose receipts are a proportion of the incomes of those who
are occupied, I hope the reader will feel, whether or not he thinks
himself competent to criticize the argument in detail, that the
answer is just what he would expect—that it agrees with the
instinctive promptings of his common sense.
“Nor should the argument seem strange that taxation may be
so high as to defeat its object, and that, given sufficient time
to gather the fruits, a reduction of taxation will run a better
chance than an increase of balancing the budget. For to take the
opposite view today is to resemble a manufacturer who, running at
a loss, decides to raise his price, and when his declining sales
increase the loss, wrapping himself in the rectitude of plain arithmetic,
decides that prudence requires him to raise the price still more—and
who, when at last his account is balanced with nought on both sides,
is still found righteously declaring that it would have been the
act of a gambler to reduce the price when you were already making
a loss.” [1933 Essay: The Means to Prosperity, section I:
The nature of the problem, p338, The Collected Writings of
John Maynard Keynes, Macmillan Cambridge University Press,
1972]
The essay clearly shows the steadily increasing
wealth of the least well off, despite the lowering GINI.
Link indirectly from Clint Hunter.
end note
Supply-side economics:
- The most effective method of creating economic growth is by using
incentives.
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