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Just when you thought Trump's presidency couldn't get any worse (how often have we heard this over the last few years), he gave the Presidential Medal of Freedom to Arthur Laffer. A short thread on this / slate.com/business/2019/…
One of the hard things about being an economist, is that the layperson's perception of what economists do and how they think is largely determined by mediastars that happen to have a degree in economics but that most economists would not consider to be serious thinkers /
At the right side of the political spectrum, the quintessential example is Laffer (at the left, JK Galbraith is a strong competitor for the champion's title, but at least he was a witty writer and did have occasional good insights before becoming a media star) /
So, what was this Laffer curve? Basically, it is a truism: when the average tax rates are zero, tax revenues are zero. When the average tax rates are 100,%, tax revenues will be zero as well. So, somewhere between 0 and 100%, there's an average tax rate that maximizes revenues./
So far, so good. This is just high school mathematics. But what Laffer and his "supply side economists" followers did, was taking a huge leap of faith and just *assume* that the US economy was right of the maximum and that lower tax rates would pay for themselves/
Now, to be sure, it is indeed possible that lowering specific tax rates could lead to higher net incomes (especially after accounting for collection costs). But this is an empirical matter, not something that you should assume./
Well, we know what happened when Reagan lowered the taxes in the 1980s, and it is interesting to see what impact this had on the supply siders' intellectual prestige among their fan base. Spoiler: none /
It cannot be emphasized enough that Laffer was never taken seriously by academic economists, even conservative ones - it is typical of the sloppiness with which the press discusses economic thinking that "supply side economics" is often equated with "monetarism" /
Well, you can agree with "monetarism" or not, but equating it with "supply side economics" is like conflating "Calvinism" with "Anglicanism" just because they are both non catholic Christian denominations. /
The problem with this kind of "pop economics" is that it completely deviates attention from a lot of hard questions, on which economists do have interesting things to say (if not final answers): what are the impacts of specific tax systems on the incentives for /
work, saving, investing, innovation? What are the trade-offs (if any) with the distributive fairness and the fight against poverty? How can we use taxes to discourage behaviour that is not desirable (polluting, for instance) and encourage behaviour that is desirable? /
