Remember those heady days of the 1980s -- days of Discos and
Disney, of Reagan and Reactionary Rule, and the Reign of Supply Side Economics
and the Laffer Curve?
In case you are a bit hazy on the latter, Economist Arthur Laffer was a key Reagan adviser who devised his well-known curve to show that there is some tax rate between zero and one hundred percent which will maximize governmental tax revenue. And that, in turn, according to Economist Laffer, will maximize economic growth and well being, not only for the capitalists -- but indeed for everyone! That free reign of capitalism will create the maximum in capitalistic wealth which in turn will trickle down to benefit workers, consumers, the general public, even the poor.
The Laffer Curve became a mainstay of Reaganomics, and Arthur Laffer was its guru. As an economist myself, I wrote and spoke out forcefully at the time in opposition to the Laffer curve and theory, and against Supply Side Economics in general. Instead of the proverbial rising tide which lifts all boats, I considered it much more likely that the rising tide of capitalist excesses would mainly sink the boats of the poor and middle class. As fellow economist John Kenneth Galbraith so-pungently stated the matter: If A Horse Eats Enough Oats, Eventually There Will Be Something in the Road for the Sparrow. Like Galbraith, I found Supply Side economics to be a sham and a scam.
Fast forward nearly thirty years, while evidence has been accumulating, and now the jury is in, regarding the Laffer Curve and Supply Side Economics in general -- IT DOES NOT WORK, never did, never will, if the goal is to raise living standards for everyone. It does work, of course, to make the rich much richer and the middle class and poor considerably poorer (usually in both absolute and percentage terms) -- just as has occurred over the past thirty-plus years. The rising tide of capitalistic greed in so many nations all over the world has moved on to give the top one percent in those same nations nearly as much wealth as the entire remainder of their populations.
Incomes, which closely follow wealth, have also become so much more unevenly distributed that the rich have gotten much richer while the poor have gotten virtually nothing, except an ever-shrinking share of national incomes and reduced standards of living. What all of this has to do with Arthur Laffer and his notorious Laffer Curve is that many governments used his theory to massively reduce various tax rates on the wealthy, because Laffer also claimed that nations were on the wrong side of his curve, with tax rates too high to produce maximum tax revenue, economic growth, and well-being. His evidence was thin at best, and nonexistent at worst -- but then, who really cared, when the wealthy control those same governments which tend to act to benefit their wealth?
While this rising tide of capitalist excess was sinking the boats of the poor and middle class, a new generation of economists was emerging, many of whom challenged Arthur Laffer and his infamous Curve. Foremost among these challengers is French economist Thomas Piketty, professor at both the Paris and London Schools of Economics, whose book CAPITAL IN THE TWENTY-FIRST CENTURY totally refutes not only the Laffer Curve but much of the rest of Supply Side Economics, which has not worked for the past thirty years -- indeed, Supply Side theory has never worked, if our goal is that the so-called rising tide of income and wealth should benefit nearly everyone. On the other hand, if our economic goal is merely for the rich to get richer and everyone else to get nothing, or very little, Supply Side is fine!
Now, some thirty years later, there is no evidence that lower taxes produce higher economic growth rates or stronger economies, nor that real entrepreneurship is facilitated as a result. Not surprisingly, the main beneficiaries of lower income tax rates are the rich and super-rich, whose wealth and income have expanded massively in many nations during the intervening years, while the incomes and wealth of the vast majority of citizens have actually shrunk during the period. These facts are particularly true regarding income and wealth shares -- but even absolute income levels have been dropping, so the rich are indeed getting richer while everyone else is getting poorer. While economist Piketty has highlighted these trends in his pivotal book, they have become so clear that, belatedly, the myth of lower tax rates being advantageous to most economies is finally being challenged from many directions!
What does Arthur Laffer have to say about all of this? Not much, beyond mumbles and stumbles, judging from a recent television interview -- which is not to say that Laffer admits that he was wrong, but he has at least stopped saying that his theory is self-evident. What is self-evident, though, is the truth of something that another economist, John Maynard Keynes, the founder of modern macroeconomics, said during the Great Depression of the 1930s: that the ideas of economists, both when they are right and when they are wrong, are more powerful than commonly thought. Keynes went on to say that, indeed, the world is ruled by little else. When it comes to Arthur Laffer, and his defunct curve and theory, the repudiation of Supply-Side economics has turned him from being the Guru of the 1980s to the King of Irrelevance today. The last laugh is on him.
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