Monday, August 6, 2012

Brad DeLong skewers Art Laffer, he of the Laffer Curve


My guess is that Art Laffer knows better, but is disingenuously making a partisan argument for propaganda purposes — modern priest-speak to fool the rubes in the pews and get them to vote against their interests.

Read it at Brad DeLong — Grasping Reality with Both Invisible Hands
Why History Of Economic Thought Is Important: Whack-A-Mole Wall Street Journal/Arthur Laffer Edition
Brad DeLong

David Glasser, FTC economist, shreds Laffer, too, in Arthur Laffer, Anti-Enlightenment Economist. Check you the exchange in the comments between Glasser and Lars Christensen, who also slammed Laffer today ( link at end of Glasser post).

Noah Smith @Noahpinion tweets, Should I bother pulpifying Art Laffer when others have done it so well already? Probably not. Sigh...

38 comments:

money4nothingchicks4free said...

Arthur Lafter writes:Moreover, Estonia, Ireland, the Slovak Republic and Finland, the four nations with the biggest stimulus programs, had the steepest declines in growth.
http://www.newsmax.com/StreetTalk/Laffer-Stimulus-Depressant-government/2012/08/06/id/447692

Not long ago supply siders were arguing that austerity has created growth in Estonia and Latvia. Krugman pointed out that this was not the case and Estonian president went mad in twitter. Now they are saying that Estonian stimulus created a slump. It's not that they don't understand, they don't want to understand. Lafter has studied economics in Yale and Stanford, he was Reagan's advisor. Does he not know what Keynesian stimulus is? We are not dealing with Bob Roddis here. Does Lafter get paid for this propaganda?

Tom Hickey said...

"Does Lafter get paid for this propaganda?"

Read Ravi Batra. When the intelligentsia is not in power, the "experts" hire out to those in power for a cut in the spoils. They are employed to justify the status quo.

beowulf said...

That Ravi Batra really was ahead of the curve wasn't he?

Tom Hickey said...

Here's Lars Christensen's commenton it at David Glasser's.


Lars Christensen
August 6, 2012 at 3:20 pm
David, I am surely also much more disappointed by Meltzer. Meltzer, however, is getting is economics wrong. He can be forgiven for that – even though it is pretty bad. Laffer is MANIPULATING the numbers. That is certainly a lot more dishonest and it makes you think what he did in his “regular” research.


Pretty damning. Apparently, Laffer was not concerned about what his peers would say. Wonder why?

bubbleRefuge said...

Was going to mention this, but beowulf got out in front.
from Brad Delongs blog:

beowulf said...

"Warren Mosler — The origin of MMT is 'Soft Currency Economics' at www.moslereconomics.com which I wrote after spending an hour in the steam room with Don Rumsfeld at the Racquet Club in Chicago who sent me to Art Laffer who assigned Mark McNary to work with me to write it...

The main takeaways are simply that with the $US and our current monetary arrangements, federal taxes function to regulate demand, and federal borrowing functions to support interest rates, with neither functioning to raise revenue per se. In other words, operationally, federal spending is not revenue constrained. All constraints are necessarily self imposed and political. And everyone in Fed operations knows it."
http://mmtwiki.org/wiki/History_of_MMT

David said...

Wasn't Laffer the guy who famously wrote on the napkin at dinner with Dick Cheney giving him the idea that "deficits don't matter?" Tell em whatever they want to hear, I guess, and always be ready to change with the times. The new flavor must be austerity.

Matt Franko said...

D,
Some think what Cheney meant was that they don't matter politically. rsp

Bob Roddis said...

The fundamental undeniable fact of the universe is that human beings act but with very limited knowledge of each other's subjective values. Further, humans engage in voluntary cooperative economic exchange where each party believes he/she has improved her condition. There is no "equivalence" in such an exchange except for the approximate valuation given to the transaction by the use of money. Such transactions are often referred to as "spending" but that provides an incomplete picture because such a reference focuses only upon the buyer.

The fundamental basis of the Keynesian worldview is to ignore the underlying fundamental reality of human exchange and to suggest, without basis in fact or theory, that the exchange process is analogous to physics. According to this "windup toddler toy model" of economics, the process voluntary of exchange allegedly requires an external source to provide it with "momentum" or "stimulus". The free actors left to themselves will allegedly not be able to generate the necessary "momentum" for the toy to spin to its full potential so that the process needs a source of ubiquitous external oversight in the form of the totalitarian-minded Keynesians to provide that "momentum". How convenient.

Due either to stupidity or dishonesty (probably both), the Keynesians must always focus upon "spending" while insisting that two completely different phenomena, voluntary exchange and government "spending" are really the same thing. Not only that, but they insist that government "spending" can replace private "spending" in a positive manner. Not only that, but they insist that a lack of private spending suggests a lack of "momentum" which can be and must be provided by government "spending".

In reality, the only thing that the creation of fiat funny money can functionally accomplish is to steal purchasing power from those holding the existing money to those getting the new money. It is likely that those getting the new money will probably "spend" it sooner than the real owners of the purchasing power would have, thereby making the dimwitted Keynesian think he has provided the necessary "momentum" to the "spending" process. The catastrophic secondary effect is to distort the pricing process, the information system necessary for informed economic calculation. The only thing that government "spending" can accomplish is to steal resources from others and [mis]direct those resources as the government chooses. Since the real owner of those resources was probably not "spending" in the present time as fast as the Keynesian deemed appropriate and while the government was "spending" in the present time, the dimwitted Keynesian can shout with joy that he has provided the necessary "momentum" (stimulus) to the "windup toddler toy" that is his "model" of free exchange. In reality, those resources have simply been misdirected, but the "spending" itself has distorted the price system and thus impaired informed economic calculation.

Because the "economy" is not a windup toddler toy and does not possess or lack momentum, the entire Keynesian theory and worldview is preposterous.

Tom Hickey said...

Bob, an undeniable fact of the universe is that human knowledge grows, and there is no unknown limit to the extent of possible knowledge-growth through tapping the inherent capacity of human consciousness.

After watching NASA put a heavy object on Mars with absolute precision and hearing their projections about manned flight there within a coule of decades and eventual human settlement, the calculation problem just does not seem credible.

This is not the 18th or 19th century. Your position is based on a pessimistic attitude. It sounds foolish to optimists about the human future. The problem is not so much lack of knowledge or knowledge capacity as it is perversion of knowledge for private gain by sociopaths. The problem at hand is removing the sociopaths from positions of power, so that humanity can get on with its future possibilities.

Chewitup said...

Praxeology and human action only go so far. Our society is no longer every man for himself. Our government has a fiat currency system where much of the money created leaks into savings, pension and retirement accounts, both foreign and domestic. Money can also be created via credit, but there is a limit to credit-worthiness. As our economy goes thru it's cycles, our government has the ability to temper the parts of the cycle that create extreme hardship on many of our citizens.
I understand how some people believe they are better than others. But why make others less fortunate suffer? No one wants ubiquitous external oversight, and no one wants a massive welfare state. But we should be able to agree that government has a purpose and the ability to smooth over rough patches with fiscal policy as long as the ubiquitous overseers keep an eye on inflation.
Unless you can figure out a way to confiscate the excess of the 1% redistribute it to the 99%.

Matt Franko said...

When Laffer writes:

"Quite simply, government taxing people more who work and then giving more money to people who don't work is a surefire recipe for less work, less output and more unemployment."

He is CORRECT, based on our current policy options that over-tax those who are fortunate enough to retain paid employment and for the rest only allows Unemployment Compensation and Public Assistance instead of an JG/BIG.

Rsp,

Tom Hickey said...

chewitup: Unless you can figure out a way to confiscate the excess of the 1% redistribute it to the 99%.

A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000. The three richest peoplepossess more financial assets than the lowest 48 nations combined.[5]
Wikipedia-Economic Inequality

Globally and nationally humanity is on the upward slope of a Kuznets curve.

y said...

"In reality, the only thing that the creation of fiat funny money can functionally accomplish is to steal purchasing power from those holding the existing money to those getting the new money."

This is simply incorrect. Repeating it over and over again doesn't make it right, Bob.

Bob Roddis said...

This is simply incorrect. Repeating it over and over again doesn't make it right, Bob.

I know that. It not only functions to steal purchasing power from innocent average people usually to the benefit of the elite but it also fatally impairs economic calculation thereby distorting the price, investment and capital structure leading to the boom/bust cycle. But I think I alluded to that.

Also, just repeating over and over that I'm wrong without any analysis whatsoever doesn't make me wrong.

beowulf said...

"Quite simply, government taxing people more who work and then giving more money to people who don't work is a surefire recipe for less work, less output and more unemployment."

Actually, Michael Hudson would agree with this sentence, just of matter of correctly defining "work" and "don't work".

"The banking interests have gained sufficient power to distort tax policy, creating a dual fiscal-financial problem. Taxes have been shifted off the major bank customers – real estate and monopolies – onto labor and consumers."
http://michael-hudson.com/2012/04/productivity-the-miracle-of-compound-interest-and-poverty/

Of course, Laffer knows this too. To his credit, he's endorsed taxing unrealized capital gains (I've been saying for months that the only way Romney gets out from under the tax issue is by endorsing that or its near relation, the net wealth tax).
http://books.google.com/books?id=QzGAPcjf6ksC&pg=PA182&lpg=PA182#v

Tom Hickey said...

"government taxing people more who work and then giving more money to people who don't work"

beowulf is of course right about Hudson's view.

This is absolutely correct about the current policy and the elite push to tax productive work and not tax rents. Tax the workers but don't tax us rentiers. After all, our "investments" create jobs. Except rents are not productive investment, they are financial "investment," and the two are similar in name only.

Laffer knowns this for sure, and his statements are hypocrisy and deception of the worst sort.

Matt Franko said...

Beo,

imo people have to drop the f-ing partisanship and instead just refocus on what Bill Mitchell has called "the tyranny of the math"....

Drop the partisanship, focus on the math.

Rsp,

Bob Roddis said...

How can anyone tell if a "capital gain", especially an unrealized one, is real or nominal and thus non-existent under a fiat funny money regime dedicated to impairing economic calculation?

Tom Hickey said...

Bob, your economic model is based on the corn analogy that used to be popular in Classical economics. The harvested corn is separated into feed corn and seed corn on a ration of about ten to one. The feed corn is consumed by the animals over the winter, and the seed corn is saved for the spring when it is invested in the ground for the new harvest. Real savings literally equals real investment.

You want to add gold as the universal medium of exchange, to facilitate exchange. Gold is considered a real asset like seed corn and other commodities. So all exchange is real rather than nominal.

Simple, clean and clear system. So why net use it in order to avoid the problems you complain about?

The simple answer is trade-offs and opportunity cost. A simple system that uses real exchange is potentially more stable in theory than a credit system, but it creates a drag on growth in comparison with a credit-based system.

If you want to argue natural order, the credit-based exchange not only predates bullion-based exchange, but it has also been in wider use. Why. Because credit-based exchange facilitates economic activity more effectively and efficiently than bullion-bullion based. So people are willing to accept the costs of a nominal systems rather than real, judging that the economic cycles are a cost worth bearing for the economic rewards of a credit-based system.

It's a "natural" choice made by the "fittest" in the sense of their being the most economically successful in the process of human evolution.

As you recognize, the choice between a bullion-based system and a credit-based system is a political one. Credit is "leverage." Forgoing leverage in finance is like abstaining from the use of levers in engineering. It greatly inhibits what one can accomplish.

Admittedly, powerful tools are potentially dangerous. That doesn't mean that their use is best abandoned. Rather, it should be controlled. Not everyone is permitted access to explosives but civil engineering would be greatly inhibited without them. Same with financial leverage. The solution is to control it within the limits necessary to prevent destructive abuse.

Tom Hickey said...

How can anyone tell if a "capital gain", especially an unrealized one, is real or nominal and thus non-existent under a fiat funny money regime dedicated to impairing economic calculation?

The question is simply who worked and who sat on their butts collecting rents from either inactivity or non-productive activity — or actually destroyed productive activity in the process. There is a grey area here but also a large black and white one that's not at all difficult to figure out without even using a calculator..

Bob Roddis said...

A simple system that uses real exchange is potentially more stable in theory than a credit system, but it creates a drag on growth in comparison with a credit-based system.

There is no inhibition upon the creation of credit transactions under my system. There is no "drag on growth". Your system is based upon artificially inducing transactions to occur that otherwise would not and should not. And then when people engage in such artificially induced transactions to create unsustainable spawl for 40 miles from downtown in order to have a store of wealth in the face of funny money dilution, you guys want to simultaneously artificially bottle up those transactions while screaming about "global warming".

You guys just think you are so smart. You know just how much to artificially stimulate transactions and exactly when to impede them. All at the same time!

y said...

Bob, you solve problems by pretending that they don't exist and have never existed.

paul said...

Bob: There is no inhibition upon the creation of credit transactions under my system.

Do you mean there is no limit to how many credit-somethings a person can earn or there is no limit to how much a person can borrow at interest?

Tom Hickey said...

Bob, last I heard you wanted a bullion system and lending of bullion, i.e., "real" savings. You can't argue logically that the system you advocate is both more stable and just as supportive of growth with restricted leverage. The trade-off is wrt stability and growth, and this is empirically determinable based on historical evidence. Groups that chose to play it safe were dwarfed by groups that took risks to further objectives. Those most successful over a period of time were successful at maintaining balance point of prudent and imprudent risk using high leverage of financial and non-financial assets.

y said...

"It not only functions to steal purchasing power from innocent average people usually to the benefit of the elite but it also fatally impairs economic calculation thereby distorting the price, investment and capital structure leading to the boom/bust cycle."

As I said, just repeating your nonsense over and over again doesn't make it right, Bob.

y said...

"without any analysis whatsoever"

You don't offer analysis, Bob. You just spout the same garbage over and over.

Bob Roddis said...

y said...
"without any analysis whatsoever"


Right. Where's your proof of the mechanical/momentum theory of "economics"?

y said...

I don't subscribe to or even recognise your ridiculous, idiotic, cack-handed caricature of Keynesian economics.

Bob Roddis said...

Mr. Hayek: You’re perfectly right, but I’d like to add one thing. You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you’re doing good to the people in general. The politicians didn’t want to hear anything more than that – to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential.

http://www.youtube.com/watch?v=N364sN5E0hQ

y said...

Whatever Bob. Your comments are always the same:

some imaginary anarcho-capitalist system always delivers the best possible outcomes overall, and any involvement by government only ever makes things worse.

You repeat the same nonsense-riddled stock phrases over and over as if they somehow validate this childishly simplistic belief.

Then you denounce opposing views on the basis of some other simple-minded falacious nonsense.

It's become a very tedious routine.

paul said...

Right. Where's your proof of the mechanical/momentum theory of "economics"?

Never heard of the mechanical/momentum theory of economics. Where did you read about that?

Matt Franko said...

I think Bob may be referring to 'pump priming' that you sometimes read about as ascribed to Keynesian economics.

Ie govt does a little bit of stimulus and then I guess they think 'the invisible hand' takes it from there... which has shown to be false in this cycle.... rsp

beowulf said...

"Drop the partisanship, focus on the math."

Partisanship?
Which way do you suppose I'm being partisan to in this thread? I've praised Ravi Batra, Michael Hudson, called Art Laffer out for pretending not to know what Warren long ago told him but giving him credit for surprisingly taking a Michael Hudson-like position on unrealized capital gains (wealth is so maldistributed, it'd make the tax cocde far more progressive).

Speaking of math, I'll tell you how far outside the DC consensus that is; so far as I can tell, Congress has NEVER published a revenue estimate of what an unrealized capital gains tax would bring in. I'd wager Laffer's right we're talking hundreds of billions a year.

beowulf said...

"There is a grey area here but also a large black and white one that's not at all difficult to figure out without even using a calculator."

Bill Vickrey and James Meade (the Keynes protege who suggested floating payroll tax rates inversely to unemployment rate) both thought the best way to tax unrealized capital gains was retrospectively. Upon sale, levy an interest chsrge for each holding year on top of the ordinary income rate capital gains tax (citizens with foreign "PFIC" holdings are taxed this way now. At risk of being accused of partisanship, I won't name the most famous American subject to the PFIC tax regime. :o)

Taxing all cap gains this way would be the functional equivalent of a wealth tax, which would be easier to explain and levy (the very wealthy would basically be filing estate taxes annually (albeit at a far lower rate), again, the actual tax payment could be deferred with interest charges.

y said...

tax is "violence against innocent people" don't forget, not dissimilar to nuking Japan.

Matt Franko said...

Beo,

Arrgh sorry.

Didnt mean you to think that I was directing my comment towards you, rather my comment was in response to YOUR exhibition of a LACK of partisanship, ie you seem to be able to take a good idea from either "side of the aisle" and stay objective in all of this...

I think this is the better approach so my comment was intended to be supportive to yours... a keyboard can be a dangerous thing in certain hands ;)

So no, not you, again sorry I was rather thinking of a Krugman or in this case DeLong who goes after Laffer when some of what Laffer writes here is TRUE imo and I believe in consonance with MMT.

I view partisanship as a force that can actually blind one in all of this, getting caught up in it looks like it leads to shutdown of the neocortex (tho the associated transmission path remains unknown/undefined) and then no way they can see the math and they are left blind...

Sorry again bud..

rsp,

beowulf said...

No worries Matt, we just need to stay focused on our true adversary, Tom!
(I kid! I kid!)

y said...

Bob may be referring to 'pump priming'

what, you mean investing in infrastructure?