05 August 2009

Famous Economist Makes Fool Of Self On CNN

Arthur Laffer is a former advisor to President Reagan and the creator of the Laffer Curve, the notion that if tax rates get high enough that tax revenues will go down. It is a nice intuitive theory, but empirically, like a lot of macroeconomics, it is wrong. ("According to Nobel prize laureate James Tobin, '[t]he 'Laffer Curve' idea that tax cuts would actually increase revenues turned out to deserve the ridicule with which sober economists had greeted it in 1981.'"). Mr. Laffer also warned CNN viewers yesterday (via Krugman's blog):

[J]ust wait till you see Medicare, Medicaid ... done by the government[.]

I guess he didn't get the memo. You know, the one about Medicare and Medicaid being the primary government run health plans in the United States.

He was in graduate school at Stanford getting his MBA and PhD when the programs were created (in 1965) and in the six years that followed when the government agencies that created the plan were set up and the regulations were drafted, around time my dad was getting PhD in civil engineering there. Maybe he didn't get out much. It happens. And, maybe, when he was an advisor to President Reagan in the White House office on public finance issues, he never looked at the federal budget. This would explain a lot about his public finance work.

Fool or fraud? We report, you decide. Does the fact that I remember the days when CNN was a credible news source make me old?


Michael Malak said...

Actually, lowering the capital gains tax did increase revenue -- just not in a sustainable way. When the capital gains tax was lowered, the rich cashed in their stock under the assumption that the lowered capital gains tax was a short-term thing and that it would be soon raised again.

Also problematic during the Reagan years was that he never kept his promises to shrink government. Reagan was the great seducer of conservatives, all the while Bush St. was running the show behind the scenes.

Andrew Oh-Willeke said...

The capital gains tax transition issue and the Laffer curve issue are analytically distinct. And, Laffer has been immoralized for his observation in any case.

Still, this is no execuse for the Medicare/Medicaid lapse.

Anonymous said...

That's really been the most appaling thing to me about the healthcare debate. At every turn it gets dumber and less informed. I felt there was some initial push to be reasonable, nonpartisan and really change health care - listening in on the HELP committee, I was not appalled.

Then republicans responded by being inept, confused and generally impotent. The democrats responded by trashing (in the House) any real health care reform and turning the whole thing into an entitlement grab. Now the "conservatives" are responding by being outright, brutally stupid - for instance that quote. A lot of the town hall disruptions are on equal intellectual standing.

I wish dumb was a wall, so a whole mass of people would get their faces smashed next time they run straight into it.

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