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A Warning from Reagan's Economist
To see this point more intuitively, imagine what the “stimulus effect” would be if they borrowed the $700 billion from the same people to whom they gave the $700 billion and then promised to raise their taxes by enough in the future to pay off their bonds. Where’s the stimulus in that?
This point is hugely important. For the proponents of increased government spending to argue that their policies will increase output, it is absolutely essential that the increased spending by transfer recipients more than offset any decline in spending by others. If the income effects of fiscal policy net to zero, there is no rationale for these spending policies. And, the income effects of fiscal policy do indeed net to zero.
The diffuse and imprecise nature of just who bares the increased tax liabilities makes the point difficult to understand. We all know who benefits from government programs: mortgage holders, undercapitalized banks, auto companies, low-income earners and the like. But who bears the increased tax burden? That’s a far trickier question, the answer to which I don’t have. But in the aggregate I do know that for every beneficiary of government spending there is someone who has to pay for it. As Milton Friedman so wisely noted, “There ain’t no such thing as a free lunch.”
What I don’t really know is just how far this process can go and just what it will take to stop this vicious cycle. Combine the unintended consequences of a flawed model with a crashing economy in ever more desperate need of beneficial policies, and the results are lethal. The old adage “if you don’t like government problems just wait till you see government solutions” has never been truer.
Dr. Laffer is chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy—If We Let it Happen," recently published by Threshold. He’s best known in economics for the Laffer curve, showing the relation between tax rates and revenue take.
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wahooligan
I don't think anyone with any hand in the now-debunked theory of Reaganomics is in any position to offer solutions for the economy.
lbgirl
No Joke! I find it unbelievable that the Daily Beast would even post an article from this clown.
sjxylib
Government Spending is one of the few mechanisms the government actually has control over to drive the economy forward and to grow GDP.
mahoganycbh
Why would the Daily Beast give this guy a microphone?! This guy ignored every sign that the real estate bubble was about to burst and our economy was going to fall into a tailspin. Just watch his debate with Peter Schiff to see what an ingoramus he is. Good job Art, did you pay off your bet with Schiff?
http://www.youtube.com/watch?v=LfascZSTU4o
jstevens55
I can't believe this guy!! Just a few weeks ago he was praising Obama on the Bill Maher show. It is his stupid curve that got us into this mess along with his supply-side economics.
austintxusa
The eminent economist Art Laffer that said Peter Schiff completely off base and denigrated him for saying the economy was going to tank...two years ago? Yeah, he a laffer on this video. http://www.youtube.com/watch?v=2I0QN-FYkpw
Deschanel
Amazing how Republicans suddenly start worrying about government expenditure. We're still spending $10 billion a month in Iraq, people.
It's also a lie to say the government can't create resources: a healthy, educated populace is the best resource there is. Ask Europeans, whose populaces aren't wiped out by health care costs or crushing student debt. Access to healthcare and affordable education is a postive investment in a country's best resource- it's own people.
pennvegas
...so we should stop spending during a recession? What about the returns on value for the money out of the 700 Billion thats supposedly destined for infrastructure and educational development and will yield a return on investment? The failure of even republican administrations to cut taxes along with spending (or even come close to a balanced budget) make it difficult to accept the conservative economic theory as realistically implementable, and I'm surprised that this point was not brought up enough during Dubya's time.
copyboy
Hard to trust the guy who contended two years ago that "the US economy has never been in better shape" and goes on to deny any possibility that all the stuff that has since exploded could explode. He has 0 credibility. Here's the tape: http://www.youtube.com/watch?v=2I0QN-FYkpw
jpcarterisme
http://www.youtube.com/watch?v=2I0QN-FYkpw
I think Peter Schiff shows how far off base Laffer really is. I trust the words coming out of Laffer's mouth about as much as I trust Bush's words.
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Sandras
Who cares what any Republican, let alone a Reagan advocate thinks? Anything Obama does will be a step in the right direction as opposed to the Bush debacle which bankrupted and trashed our country. Bush not only turned a trillion dollar surplus into a trillion dollar deficit, but has turned America into a country owned by foreign interests and a corporate hegemony. Hopefully, Obama's policies and presidency will fix this. The question is can he balance the attempts toward a healthy economy with a healthy environment.
passenger
Please go to youtube.and find the clip with Arthur Laffer mocking Peter Schiff for predicting the current economic crisis. What an arrogant clueless man.
slemay
Dr. Laffer's ideas failed in his preferred playground, the free market. He needs better ideas.
Free markets can help us. They are why we can buy goods at low prices in retail chains. But free market systems fail because time works against them. They don't correct quickly enough.
Alan Greenspan confessed to the fallacy of his assumptions. You should do the same.
stuartnz
Wasn't Heinlein the one who coined TANSTAAFL, in "The Moon Is a Harsh Mistress"? His use certainly predates the earliest use in any economics writing.
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