Thursday, September 6, 2007

To Laff er to Cry

In the New Republic, Jon Chait explains "How Economic Crackpots Devoured American Politics." He writes:
American politics has been hijacked by a tiny coterie of right-wing economic extremists, some of them ideological zealots, others merely greedy, a few of them possibly insane. The scope of their triumph is breathtaking. Over the course of the last three decades, they have moved from the right-wing fringe to the commanding heights of the national agenda. Notions that would have been laughed at a generation ago--that cutting taxes for the very rich is the best response to any and every economic circumstance or that it is perfectly appropriate to turn the most rapacious and self-interested elements of the business lobby into essentially an arm of the federal government--are now so pervasive, they barely attract any notice.
The article details the influence of the "Laffer Curve" - the proposition that, since at 100% taxation, there is no incentive to work and therefore (theoretically) no output would be produced and no revenues would be collected, a cut in tax rates would increase tax revenues. Logical enough, but this idea has morphed into the idea expressed by some politicians - indeed, it seems to be Republican dogma nowadays - that tax cuts raise revenues in general. Which is simply not true. Real economists, who happen to be Republicans, like President Bush's former economic advisor Greg Mankiw, don't believe it. But the idea refuses to die... In an earlier post I suggested it was a good example of "Agnotology," the production of ignorance.

The problem is not whether a particular tax policy is good or bad, but the terms of the argument - as Matthew Yglesias explains well:
There's a systematic effort by the right to convince people that tax cuts are not merely beneficial in some ways or beneficial all things considered but that there are actually no tradeoffs whatsoever.
Its easy to see why such a politically convenient idea might take on a life of its own. But it does raise an interesting question of why the economics profession has not succeeded in discrediting it, and whether people like Mankiw - who supported President Bush's tax cuts even though he never believed one of the main arguments the President frequently offers - bear some responsibility. Ezra Klein says:
Jon Chait is right that the supply siders are maniacs, but they aren't marginalized maniacs, and that's in part because that economics profession hasn't seen fit to marginalize them. Mankiw may say, in his textbooks, that they're charlatans, but when push came to shove he joined their cause, disagreeing, he says, with some of their nuttier claims, but nevertheless lending them and their claims -- which included, in the Bush administration, such ideas as "returning to Clinton-era levels of taxation would wreck the economy, that retirement security can best be provided to all by expanding tax breaks for rich people, that health care can best be improved by expanding tax breaks for rich people," etc -- his name and credibility.
Megan McArdle defends Mankiw, and Matthew Yglesias responds. The Economist's Free Exchange weighs in (they, too, cannot resist bad "Laff" puns).

Chait's article is excerpted from his new book, "The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics," which might be a better way of spending my weekend than painting the guest bedroom...

No comments: