Saturday, September 18, 2004

Laff-riot

Atrios notes that Ahnuld has hired a few recycled advisors, one of whom being Arthur Laffer, whose theories were embraced by Reagan who then went on to menace the populace with "voodoo economics".

This is important not just because of Schwartzeneggar, but because Bush/Cheney basically subscribe to the same stuff, hence huge deficits and minimal taxing on the rich and super-rich.

I've been reading in and out of Garry Wills's Reagan's America the last few weeks, and I think it's useful to copy out the reference to Laffer:

...In his third year Carter did not respond to danger signs by pinching in an economy he could relax toward his November deadline the next year. As Emma Rothschild pointed out, he did many of the right things economically, but at the wrong time electorally.He added more jobs than Reagan would do in his first term, but his boom came in his first year while Reagan's came in his election year. Cumulatively, Americans would not be better off after four years of Reagan than they had been after four years of Carter; but Reagan's recession hurt his party only in the congressional elections, and was forgotten by his own race, when recovery had begun...

There were deeper problems than surface manipulataion could deal with, and Reagan's campaign addressed these. Not only was there runaway inflation in the Carter years...But the Seventies brought simultaneous inflation and stagnation, defying conventional economic prescriptions...There was little agreement among the experts.

So the amateurs took over. Several editorial writers at The Wall Street Journal--Robert Bartley, Jude Wanniski, Paul Roberts--had beome enthusiasts for the ideas of a weirdly persuasive academic showman named Arthur Laffer. The Laffer theorem was as least as old as Montesquieu, and beyond challenge in itself--the claim that tax revenues can be so high as to dry up their source. Wanniski had Laffer explain this to one of President Ford's aides (who must have been rather dense) by drawing an igloo shape on a napkin to explain the trajectory of tax returns. The drawing was not only simplistic but tendentious--a lopsided igloo, or one melting to collapse in one direction would better describe the irregularities of the curve. Yet, from Jude Wanniski's unparalleled publicity campaign, built around this doodle, the mystique of supply-side economics grew.

[...]

There was much in the supply-side analysis to appeal to Ronald Reagan. It trusted the market, distrusted government, and believed in growth. But when Jude Wanniski tried to get a hearing from the Reagan camp in 1976, he was not successful. John Sears stood in the way. Reagan had already fallen for a "funny money" speech from Jeff Bell, and Sears wanted no more risky departures from the Republicans' earlier loves--the "old-time religion" of a balanced budget, or Milton Friedman's monetary policy. But by 1980 Sears was looking for something new in the era of stagflation, something that sounded aggressive and hopeful, to strike a contrast with Carter's economic stance...By that time Laffer's views had been adopted by congressional Republicans who supported the Kemp-Roth tax cut, and Sears encouraged Congressman Jack Kemp to travel with Reagan, to change his mood as well as his views, stimulating him with Kemp's own hot-gospeler's belief...

[...]

[David] Stockman promised to give Reagan's dream the substance of things countable. Reagan would sell the program but he expected others--principally Stockman--to formulate it...Stockman quickly found out (but did not show) that he could not "square the circle" after all, which is what "Reaganomics" had promised to do...He had to show that the government would ease up...The projections were, thus, everything. But they were bleak. He had to change them...He was running out of devices and none gave enough yield; so, as he told Laurence Barrett, "We had doctored that one, just the way the previous administration doctored the Wharton model. They're absolutely doctored." But never before doctored on such a scale...

The numbers did not have to be authentic, in the Stockman view. If only people believed them, they would come true as a consequence. Thus faith had to be engendered by whatever legerdemain...As Stockman [said], "We got away with that because of the novelty of all these budget reductions."...But soon he was drowning in his own flood of figures, each uncheckable against the other, all aimed at fostering confidence rather than meeting tests of probability. The con man finally loses his own confidence when he cannot remember what is true and what is not in his own spiel: "None of us really understands what's going on with all these numbers."...At last he had to resort to what Senator Howard Baker called the "magic asterisk," a footnote attributing improbable future reductions in the out years to unidentified "future savings." The Reagan team was beginning to admit what its own Vice President had charged in the primary campaign, that supply-side theory is "voodoo economics."

What Stockman had come to fear most was his own program's success...But Reagan would not change his mind on the part of his program that he loved most by now...Reagan's own certitude and charm had made him, scarily, unbeatable."

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