The Laffer Curve

Marginally Useful Material Launcher ^ | 30 January 2004 | Robert Sturgeon

[MegaSilver]

As a business student, I can testify that the first time I saw the Laffer Curve, it made sense. It's just conventional wisdom. Of course, the *ss-kissing media would never let us know that.

[Vigilanteman]

I was an econ major when Reagan was still cleaning up after Carter. While the leftists in the profession were still pooh-poohing Dr.Laffer's very logical thesis which proceeded to prove itself, they were justifying Carter's gross mismanagement of the economy with the Phillips Curve-- which attempted to explain why inflation and unemployment could both continue to rise until the public turned to the saving graces of a planned economy.

This is why the ruling Marxists in our current intelligensia have resorted to different tactics now-- they are determined to push their version of free trade and open borders until the middle class disappears and only a multi-cultural ruling elite are left at the top of the pyramid to manage the rest of us livestock.

[Torie]

The Laffer curve was "invented/drawn" by Laffer on a napkin in a restaurant. It lacked much substantive content then, and lacks much substantive content now. Of course a 50% tax rate will bring in more revenues than a 99% tax rate. It is those noisome more "marginal" percentage figures, that are the rub. On that, Laffer provides no assistance.

By the way, for purposes of full disclosure, Laffer was once a professor of mine. When he was, I had almost as much hair as he did. No longer. Recently, his cousin, was a hostile expert witness in a trial in which I was called upon to litigate. I quite enjoyed shredding cousin Laffer. The subject was check kiting. The opposing counsel "assumed" I also sported a CPA in his closing brief. The assumption was erroneous, but I took it as a compliment. And so it goes.

[Sen Jack S. Fogbound]

The news media has taken on themselve to "educate" us as to whatever it is! Lot of it is that they themselves don't understand it.

They should stick to just reporting the fact and let us do the intrepreting.

Of couse, that's just wishful thinking. Oh, well!

[Pappy Smear]

This is a good commentary. The Laffer Curve is a great idea. I can deal with a healthy debate on the shape of the curve tho.

[Torie]

I can deal with a healthy debate on the shape of the curve tho

Nobody knows the shape, even the approximate shape, although the shape obviously varies over time based on a whole host of factors, macro, micro, and cultural. The data is two "noisy" because there are too many variables. Awareness of the unknown is a key step to good judgment, and the pursuit of knowledge.

[Torie]

By the way, the shape may reverse direction for awhile. Higher tax rates up to a point might force folks to work harder to maintain their standard of living. Oh the horror.

[randog]

As a business student, I can testify that the first time I saw the Laffer Curve, it made sense.

I'm sure it did, since it's all about maximizing revenue, something all businesses and governments seek to do. The difference between the two, however, is that the government has the legitimate threat of force on its side--they can just stick a gun in our faces and say, "pay up, sucka". I think it was Madison that said the power to tax is the power to destroy, and today taxation is as much a tool used to destroy the opposition (and conversely reward the loyal) as it is a revenue-raising tool.

[MDspinboyredux]

Ah, I remember the Laffer curve concept. It was in Econ class way back when I had more hair and was a little less cynical.

I certainly do not profess any great expertise in the 'soft science' of Economics. I decided to continue my education in the more concrete sciences of biology and chemistry.

One thing about Laffer that has always bugged me, and maybe some enlightened soul could clarify it for the class:

While Laffer indicated that IF taxes were TOO high, lowering them would actually increase revenue, he never really indicated how much was TOO much. What is the proper balance of taxation and maximum revenue?

(Yes, this is a devil's advocate question, so please refrain from your Adam Smith/Milton Friedman retorts. I'm already a member of the choir).

Yours in Capitalism,

MDSpinboyRedux

[Torie]

he never really indicated how much was TOO much

Laffer may have been a bit dumb (and frankly he was never a leading intellect in economics ever; he got by with his connections and charm, both of which were considerable), but he is not stupid. As I said before, nobody knows, in part because it is a moving target, and in part because there are so many variables, that it is next to impossible either to verify the hypothesis, or falsify it, within the reasonable range of public policy choices. Hypotheses that cannot be verified or falsified are worthless.

[BfloGuy]

Higher tax rates up to a point might force folks to work harder to maintain their standard of living.

That's precisely the argument that Democrats use to rationalize higher taxes. We'll just work harder and there won't be negative economic effects.

[Sinner6]

What is the proper balance of taxation and maximum revenue?

I recall hearing 15%, I don't know from where or from who, but 15% keeps sticking in my mind.

[MDspinboyredux]

Heh-heh! I agree with your analysis! Be as ambiguous as possible and you can make a living as an Economist......... or a Meterologist!

The MDSpinboyRedux hypothesis:

Tomorrow it will either rain or it won't.

I'm a genius! Colleges around the nation should dedicate many hours of class discussion to my astute observation!

[MDspinboyredux]

Are you thinking of Malcolm Forbes?

Didn't he push the 15% idea back in 1992 when he ran for Pres?

[SierraWasp]

"Awareness of the unknown is a key step to good judgment, and the pursuit of knowledge."

What is this "awareness of the unknown?" Some kind of lawyer's algebra? If it is unknown, then who could possibly be aware of it? Who, exactly are the elite that are posessed of this special awareness that no one knows a danged thing about, huh? Please reply immediately!!!

I guess the French Revolution din't behead 'em all.

[SierraWasp]

Hey Sinner, you need God! He uses 10% flat!!! Pretty successful for the clerics, for nearly 2000 years, even with many "backsliders" not paying most of the time. How 'bout dat?

[Tribune7]

Bueller?

[Torie]

Any scientist in most fields will amaze you with a rendition of what is known to be unknown in his or her discipline. What do you think electricity really is, and why it has the properties it does? What do you think causes gravity to be a force? What about matter really generates it, and why? Why does molten matter generate magnetic fields? Just why do the magnetic fields flip from time to time? Why is the ocean salty? How many species of life do you think on on this planet? Is it more likely to be 2 million, or closer to 200 hundred million? What do you think is "known" about that?

[DonQ]

The Laffer Curve is a rough graphic representation of the very very old "Law of Diminishing Returns", which must go back ... I would guess centuries ... in the field of economics. Somehow Laffer gets credit for it. Me, I'm looking for a way to draw a cartoon that will get me the credit for inventing Newton's Second Law of Thermodynamics.

[Torie]

Well the sexy part of the Laffer Curve, as publicized, is the Law of Negative Returns, not diminishing returns. You mission, should you choose to accept it, is to find where that begins, and why and when, and depending on what. A piece of cake, no?