The other day I wrote about how I'm currently reading Wanniski's The Way the World Works, a book which I think is as close to being the Bible of Supply Side economics as you're going to get. At this point in the book-about 40% through-I'm certainly find it very provocative and thought provoking, which is not to say that I agree with him on the really important issues.
http://diaryofarepublicanhater.blogspot.com/2013/07/jude-wanniski-way-world-works-and.html
In the above link, I pointed out that the Laffer Curve-apparently, Wanniski was the first to call the Laffer Curve, the Laffer Curve-doesn't necessarily always mean that taxes should be cut. Point E on the Curve-the ideal rate that will maximize both revenue and and economic output, which is the tax rate desire by the electorate-will in some cases require that the tax rate should actually go up.
This is a point explicitly made by Wanniski. Patrick Sullivan left a comment on that post which said the LC is just about the Law of Diminishing Returns applied to taxation. Yet, it's not just about that. It also shows that there can be a law of diminishing returns to tax cuts. Again, Wanniski explicitly states that there will be times when the electorate wants higher taxes in exchange for more government goods and services-ie, Point E requires a rise in taxes.
http://www.amazon.com/Way-World-Works-Jude-Wanniski/dp/0895263440/ref=sr_1_1?s=books&ie=UTF8&qid=1374186013&sr=1-1&keywords=jude+wanniski
See pg. 98.
During war, E may be very close to 100%. What I can't help but notice, however, is that moving from this theory to practice, Supply Siders always push for lower taxes-they never imagine that E could require higher taxes. It seems that you could argue that in 1980 to reach E we needed considerably lower taxes, but that after 30 years of Reaganite tax cuts this is no longer true. Judging by the behaviour of the electorate-and remember that Wanniski, unlike someone like Scott Sumner, believes that the electorate does at least as an aggregate understand economics and that basically the verdict of the electorate is always the correct one-assuming there wasn't gross election fraud-which may disqualify 2000, of course.
Wanniski passed away in 2005 but Laffer is still around and he certainly never thinks E calls for higher taxes.
http://online.wsj.com/article/SB10000872396390444873204577537244225685010.html?mod=WSJ_Opinion_LEADTop
Nevertheless, making this argument that Laffer himself is acting contrary to the LC requires some caution. Audrey Lorde famously said The Master's Tools Can Never Be Used to Dismantle the Master's House. I'm not sure I even gree with Lorde entirely, but I do think it's clear that what both Laffer and Wanniski were always after were tax cuts particularly for the rich-as they prefer taxes on the supply side and that's usually the rich. Wanniski clearly thinks that regressive taxation if often preferable to progressive as it increases incentives.
With Laffer's support of Romney's deep tax cuts for the rich it begs the question if E ever reaches the point where further tax cuts are no longer productive. He does admit that a zero tax rate is not optimum but it's tough to see if he thinks it should ever be higher than 1% maybe contrary to what the E Curve seems to impliy.
In They Way the World Works, Wanniski blames the stock market collapse and the later collapse of the real economy on Smoot-Hawley, but he sees the start of the trouble when Coolidge decided not to seek a second term and Hoover made it clear he wouldn't look to cut the top marginal rate beneath 25%. So whatever E might be it seems to require a very low tax rate indeed.
I came across this great interview Laffer did with Alexander Cockburn and Jim Ridgeway. It's a very entertaining two part interview and gives some fascinating insights in Wanniski's theory. It's very tough to dislike him personally as Cockburn and Ridgeway attest. What I found fascinating was his discussion of his time advising Reagan for the 1980 election. He was very confident of winning.
AC/JR: Do you think Reagan can beat Carter?
"Easily. Carter can get as many votes as he got in 1976 and still lose in a landslide, because the electorate is going to be given the first supply-siders it's had."
"Yes. Reagan loves the stuff. John Sears, before he left, kept telling Kemp that he should spend more time on the campaign trail with Reagan, because whenever he spent a day or two with Reagan, Reagan came alive. When Kemp leaves, Reagan subsides. He is now at the point where he is getting better and better all the time."
I just love that-getting better all the time. This is what Reagan's idolaters said about him, what the Reaganites thought of Reagan when they meant to praise him.
What I find fascinating about Wanniski is he gets it, he understands there are dangers with Reagan being out in front of the press-without being properly briefed. This is the key-keep Reagan briefed properly so he doesn't wander off the reservation.
AC/JR: What happens when the press gets a bit specific, as when they asked him on Issues and Answers about the 30 per cent tax cut and he covered up?
"That was just confusion, because he wasn't briefed. That was one of the points Sears made when he departed. The biggest problem is getting Reagan briefed."
The issue of getting the Gipper briefed was also present with George W. Bush and then Sara Palin. Wanniski made sure Reagan was briefed:
AC/JR: But supposing Reagan takes a couple of clouts. The press puts some fellow like Leonard Silk on the Laffer question, and there are some moderately technical questions, and the old boy will maybe stick his foot in the trough a couple of times, and there’ll be a fuss about Reagan blundering. So then the other camp, the official advisers, will come to the governor and say, This Wanniski-Laffer-Kemp stuff is a bit off the wall. Let's get back to the old verities, i.e., the status quo, the old time religion.
I wrote a three-page memo this morning to Reagan. I told him questions he was going to be asked and in the last paragraph I said to Reagan, No matter what sort of a box you get yourself into, one thing you've got to remember is Be Stubborn: Even if you're confused, you still think this is the right thing to do. That's all the electorate is going to watch for, that you are absolutely determined in the face of all critical questions.
Be stubborn. Wanniski's argument basically is that the electorate would vote for him because he really believed in supply-side economics and wouldn't hold it against him that he didn't understand a lot of it. The fact that he didn't have technical knowledge in this premise might even endear him to the electorate-since Reagan the GOP often plays this game-the trouble with Al Gore was that he understood too much technical stuff-that's not a real American!
We see that the never mind the facts this is what we believe strategy is alive and well in the GOP today-Mitt Romney did the same thing though it didn't work this time
"Productivity is doing the same work with less effort. I wrote a memo to Governor Reagan this morning, saying, Carter will boast that he increased the number of jobs, since he took office, that there are more jobs now than there were in 1977 when he was inaugurated. But be should not be able to boast about this. The only reason there are so many jobs now is because his economic policies have forced so many people to go to work to make ends meet. If you'd had correct policies followed in 1975, 1976, and 1977, you would have maybe 10 million fewer people working today. The object of economic policy is not more work, it's less work. You want to be able to expend the same amount physical effort, intellectual effort, to get the same amount of goods. That's the object of economic policy. We are in the process of destroying capital now as a result of forcing so many women because of the inflation, because of the contraction in the economy, to go out and work, rather than stay home and help their children with the reading lessons and drilling them on the times tables..."
You created 10 million too many jobs?! That has got to be a watershed in political election history-the problem is my opponent created 10 million jobs. What should have been done is taking this amazing argument to its logical conclusion. You think there should be too many jobs? How many jobs do you promise to get rid of-10 million? You actually pledge to lose us 10 million jobs? Then in 1984 you could have reminded Reagan what he said in 1980-Mr. President why have you created so many jobs? The American people have been robbed of their leisure.
I guess George W. Bush was a great President after all. There is also some anti-feminism-it implies that women were being forced to work by the 'bad economy' that had so many new jobs.
By this gauge Reagan was a failure as only he along with Carter, LBJ and Clinton saw enough jobs created during his time in office to exceed the rate of population growth.
Again, Wanniski was very shrewd. He vowed that Reagan would not cut the welfare state.
AC/JR: Will welfare and social programs be cut?
"No. Social programs are left in place. "The safety net," we call it. Government spending is reduced via economic expansion that makes people ineligible for welfare, unemployment, food-stamp benefits, etc., by virtue of having good jobs and good incomes."
Looking back it's clear that the Supply-Siders won the battle for Reagan's mind. Here we are 33 years later and this remains the official ideology of the GOP-much more than say Milton Friedman's Monetarism-that Wanniksi claimed to oppose as much as Keynesianism.
"Here is the second half of the interview I gave the Village Voice in April, 1980, 20 years ago, when I sensed the campaign to elect Ronald Reagan would be diverted by the Old Guard Republican Establishment. The supply-side "wild men," of which I was one, Jack Kemp another, managed to preserve the essential ingredients of the economic planks -- especially the tax cuts -- that were essential to Reagan's victory over Jimmy Carter that November. Note in this second part the discussion of the International Monetary Fund as a dark force that had to be overcome... Reagan's hope for a gold dollar and reform of the IMF were the two main ingredients that eluded us, then and now."
http://www.polyconomics.com/index.php?option=com_content&view=article&id=2543:anniversary-of-an-interview-part-two&catid=39:2000
The Romney-Ryan platform of 2012 had all the same essential ingredients-deep tax cuts for the rich and Ryan actually supports more than just a return to the gold standard but the gold coin standard. Yet, again, if the Laffer Curve were taken seriously, can it not argue that maybe E shows that we've had enough tax cuts for the rich at least? So this all remains part of the GOP toolbox.
The other part is the intellectual causistry of Laffer like when he actually said Carter should be criticized for creating jobs-robbing Americans of their leisure. Reagan clearly got into the spirit of this when he said that Carter's claim that it wasn't a recession-which it wasn't-might meet some 'dictionary' definition of a recession -but had nothing to do with how Americans were feeling. Again, darn the fact checkers they're out of touch.
Wanniski, never claimed that there is any proof to justify Supply-Side economics.
"This is all theory...All we're saying is that there is an extra effect in the economy by having a lower rate which encourages people to produce more, that encourages capital and labor to come forth with greater production."
Yet from this very modest claim he somehow got to claiming that all recessions and depressions are due to the government tamping down the economy due to onerous taxes and regulations. According to him there's no such thing as the demand side being the cause of a downturn because the consumption wants of people are limitless.
I don't think there's a more clear case of a true intellectual sophist than Wanniski. His and Laffer's ideas live on today at least inside the Republican party.
http://diaryofarepublicanhater.blogspot.com/2013/07/jude-wanniski-way-world-works-and.html
In the above link, I pointed out that the Laffer Curve-apparently, Wanniski was the first to call the Laffer Curve, the Laffer Curve-doesn't necessarily always mean that taxes should be cut. Point E on the Curve-the ideal rate that will maximize both revenue and and economic output, which is the tax rate desire by the electorate-will in some cases require that the tax rate should actually go up.
This is a point explicitly made by Wanniski. Patrick Sullivan left a comment on that post which said the LC is just about the Law of Diminishing Returns applied to taxation. Yet, it's not just about that. It also shows that there can be a law of diminishing returns to tax cuts. Again, Wanniski explicitly states that there will be times when the electorate wants higher taxes in exchange for more government goods and services-ie, Point E requires a rise in taxes.
http://www.amazon.com/Way-World-Works-Jude-Wanniski/dp/0895263440/ref=sr_1_1?s=books&ie=UTF8&qid=1374186013&sr=1-1&keywords=jude+wanniski
See pg. 98.
During war, E may be very close to 100%. What I can't help but notice, however, is that moving from this theory to practice, Supply Siders always push for lower taxes-they never imagine that E could require higher taxes. It seems that you could argue that in 1980 to reach E we needed considerably lower taxes, but that after 30 years of Reaganite tax cuts this is no longer true. Judging by the behaviour of the electorate-and remember that Wanniski, unlike someone like Scott Sumner, believes that the electorate does at least as an aggregate understand economics and that basically the verdict of the electorate is always the correct one-assuming there wasn't gross election fraud-which may disqualify 2000, of course.
Wanniski passed away in 2005 but Laffer is still around and he certainly never thinks E calls for higher taxes.
http://online.wsj.com/article/SB10000872396390444873204577537244225685010.html?mod=WSJ_Opinion_LEADTop
Nevertheless, making this argument that Laffer himself is acting contrary to the LC requires some caution. Audrey Lorde famously said The Master's Tools Can Never Be Used to Dismantle the Master's House. I'm not sure I even gree with Lorde entirely, but I do think it's clear that what both Laffer and Wanniski were always after were tax cuts particularly for the rich-as they prefer taxes on the supply side and that's usually the rich. Wanniski clearly thinks that regressive taxation if often preferable to progressive as it increases incentives.
With Laffer's support of Romney's deep tax cuts for the rich it begs the question if E ever reaches the point where further tax cuts are no longer productive. He does admit that a zero tax rate is not optimum but it's tough to see if he thinks it should ever be higher than 1% maybe contrary to what the E Curve seems to impliy.
In They Way the World Works, Wanniski blames the stock market collapse and the later collapse of the real economy on Smoot-Hawley, but he sees the start of the trouble when Coolidge decided not to seek a second term and Hoover made it clear he wouldn't look to cut the top marginal rate beneath 25%. So whatever E might be it seems to require a very low tax rate indeed.
I came across this great interview Laffer did with Alexander Cockburn and Jim Ridgeway. It's a very entertaining two part interview and gives some fascinating insights in Wanniski's theory. It's very tough to dislike him personally as Cockburn and Ridgeway attest. What I found fascinating was his discussion of his time advising Reagan for the 1980 election. He was very confident of winning.
AC/JR: Do you think Reagan can beat Carter?
"Easily. Carter can get as many votes as he got in 1976 and still lose in a landslide, because the electorate is going to be given the first supply-siders it's had."
He surely wasn't wrong that he could win easily. There was, however, a battle for Reagan's mind among the Reaganites-between the Supply Siders on the one hand and the 'Old Guard' on the other. The OG preached deficit reduction first before tax cuts. Wanniski came up with the Two S but Santa Claus theory-cut taxes now and vow not to cut the safety net but rather pay for it in a more efficient way.
Reagan was a Supply Sider in his gut, by instinct, according to Wanniski.
"AC/JR: Does Reagan really believe in supply side economics?
"Yes. Reagan loves the stuff. John Sears, before he left, kept telling Kemp that he should spend more time on the campaign trail with Reagan, because whenever he spent a day or two with Reagan, Reagan came alive. When Kemp leaves, Reagan subsides. He is now at the point where he is getting better and better all the time."
I just love that-getting better all the time. This is what Reagan's idolaters said about him, what the Reaganites thought of Reagan when they meant to praise him.
What I find fascinating about Wanniski is he gets it, he understands there are dangers with Reagan being out in front of the press-without being properly briefed. This is the key-keep Reagan briefed properly so he doesn't wander off the reservation.
AC/JR: What happens when the press gets a bit specific, as when they asked him on Issues and Answers about the 30 per cent tax cut and he covered up?
"That was just confusion, because he wasn't briefed. That was one of the points Sears made when he departed. The biggest problem is getting Reagan briefed."
The issue of getting the Gipper briefed was also present with George W. Bush and then Sara Palin. Wanniski made sure Reagan was briefed:
AC/JR: But supposing Reagan takes a couple of clouts. The press puts some fellow like Leonard Silk on the Laffer question, and there are some moderately technical questions, and the old boy will maybe stick his foot in the trough a couple of times, and there’ll be a fuss about Reagan blundering. So then the other camp, the official advisers, will come to the governor and say, This Wanniski-Laffer-Kemp stuff is a bit off the wall. Let's get back to the old verities, i.e., the status quo, the old time religion.
I wrote a three-page memo this morning to Reagan. I told him questions he was going to be asked and in the last paragraph I said to Reagan, No matter what sort of a box you get yourself into, one thing you've got to remember is Be Stubborn: Even if you're confused, you still think this is the right thing to do. That's all the electorate is going to watch for, that you are absolutely determined in the face of all critical questions.
Be stubborn. Wanniski's argument basically is that the electorate would vote for him because he really believed in supply-side economics and wouldn't hold it against him that he didn't understand a lot of it. The fact that he didn't have technical knowledge in this premise might even endear him to the electorate-since Reagan the GOP often plays this game-the trouble with Al Gore was that he understood too much technical stuff-that's not a real American!
We see that the never mind the facts this is what we believe strategy is alive and well in the GOP today-Mitt Romney did the same thing though it didn't work this time
"Productivity is doing the same work with less effort. I wrote a memo to Governor Reagan this morning, saying, Carter will boast that he increased the number of jobs, since he took office, that there are more jobs now than there were in 1977 when he was inaugurated. But be should not be able to boast about this. The only reason there are so many jobs now is because his economic policies have forced so many people to go to work to make ends meet. If you'd had correct policies followed in 1975, 1976, and 1977, you would have maybe 10 million fewer people working today. The object of economic policy is not more work, it's less work. You want to be able to expend the same amount physical effort, intellectual effort, to get the same amount of goods. That's the object of economic policy. We are in the process of destroying capital now as a result of forcing so many women because of the inflation, because of the contraction in the economy, to go out and work, rather than stay home and help their children with the reading lessons and drilling them on the times tables..."
You created 10 million too many jobs?! That has got to be a watershed in political election history-the problem is my opponent created 10 million jobs. What should have been done is taking this amazing argument to its logical conclusion. You think there should be too many jobs? How many jobs do you promise to get rid of-10 million? You actually pledge to lose us 10 million jobs? Then in 1984 you could have reminded Reagan what he said in 1980-Mr. President why have you created so many jobs? The American people have been robbed of their leisure.
I guess George W. Bush was a great President after all. There is also some anti-feminism-it implies that women were being forced to work by the 'bad economy' that had so many new jobs.
By this gauge Reagan was a failure as only he along with Carter, LBJ and Clinton saw enough jobs created during his time in office to exceed the rate of population growth.
Again, Wanniski was very shrewd. He vowed that Reagan would not cut the welfare state.
AC/JR: Will welfare and social programs be cut?
"No. Social programs are left in place. "The safety net," we call it. Government spending is reduced via economic expansion that makes people ineligible for welfare, unemployment, food-stamp benefits, etc., by virtue of having good jobs and good incomes."
Looking back it's clear that the Supply-Siders won the battle for Reagan's mind. Here we are 33 years later and this remains the official ideology of the GOP-much more than say Milton Friedman's Monetarism-that Wanniksi claimed to oppose as much as Keynesianism.
"Here is the second half of the interview I gave the Village Voice in April, 1980, 20 years ago, when I sensed the campaign to elect Ronald Reagan would be diverted by the Old Guard Republican Establishment. The supply-side "wild men," of which I was one, Jack Kemp another, managed to preserve the essential ingredients of the economic planks -- especially the tax cuts -- that were essential to Reagan's victory over Jimmy Carter that November. Note in this second part the discussion of the International Monetary Fund as a dark force that had to be overcome... Reagan's hope for a gold dollar and reform of the IMF were the two main ingredients that eluded us, then and now."
http://www.polyconomics.com/index.php?option=com_content&view=article&id=2543:anniversary-of-an-interview-part-two&catid=39:2000
The Romney-Ryan platform of 2012 had all the same essential ingredients-deep tax cuts for the rich and Ryan actually supports more than just a return to the gold standard but the gold coin standard. Yet, again, if the Laffer Curve were taken seriously, can it not argue that maybe E shows that we've had enough tax cuts for the rich at least? So this all remains part of the GOP toolbox.
The other part is the intellectual causistry of Laffer like when he actually said Carter should be criticized for creating jobs-robbing Americans of their leisure. Reagan clearly got into the spirit of this when he said that Carter's claim that it wasn't a recession-which it wasn't-might meet some 'dictionary' definition of a recession -but had nothing to do with how Americans were feeling. Again, darn the fact checkers they're out of touch.
Wanniski, never claimed that there is any proof to justify Supply-Side economics.
"This is all theory...All we're saying is that there is an extra effect in the economy by having a lower rate which encourages people to produce more, that encourages capital and labor to come forth with greater production."
Yet from this very modest claim he somehow got to claiming that all recessions and depressions are due to the government tamping down the economy due to onerous taxes and regulations. According to him there's no such thing as the demand side being the cause of a downturn because the consumption wants of people are limitless.
I don't think there's a more clear case of a true intellectual sophist than Wanniski. His and Laffer's ideas live on today at least inside the Republican party.
'Patrick Sullivan left a comment on that post which said the LC is just about the Law of Diminishing Returns applied to taxation. Yet, it's not just about that. It also shows that there can be a law of diminishing returns to tax cuts.'
ReplyDeletePriceless! Do you spend even a few seconds thinking about what you write?
What's priceless is how little your comments contribute to anything. IF you could meet points head on rather than quibbling at the margin you might actually come up with something interesting to say.
ReplyDeleteThe point is that the LC doesn't just mean 'don't ever raise taxes'-in fact sometimes the E Point can only be reached by raising taxes. If you think about what you write why don't you ever come up with anything interesting to say?
You must be a very short person.
ReplyDeleteMaybe this is why you get no comments over at your blog.
Delete