This will be fun:
Debating with Arthur Laffer, author of the Laffer curve? That's not something I had thought about until recently, but which I have a feeling I will enjoy.
I have done an equivalent debate before: see here.
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I noted reports from over the weekend that Boris Johnson had started burbling on about the Laffer curve as a way of squaring the (Conservative) circle with regard to increased spending on the NHS and promising tax cuts. The Guardian succinctly dismissed this as “a right wing fantasy”.
Although I recognize the tautology in the following statement, it still has to be said – Boris Johnson is talking CRAP again (superfluous word in caps 🙂 )
Richard, Following on from the fact that money is created out of thin air, and that most government spending pays for itself, there is a corollary. The conventional view will be that the purpose of tax is to mop up the money created from thin air. Tax as a black hole. But in reality there will be a steady state. New money will be being created at the same time as money is being mopped up. The two functions largely cancel each other out. So that in fact only a tiny function of tax is to “balance the books”. The major function of tax is to change the direction in which money flows. To plug leaks in the system, and to channel money from where it is unproductive to investments where it adds more value
The beauty of Laffer curves was over-simplicity (about 1970). Now one needs ‘optimal Laffer curves’.
based on optimal fiscal policy base allowing for varying multiple tax instruments over time. The more complex model, even with neo-classical assumptions, suggests 93% more tax might be raised than under standard Laffer. This rather reduces the use of Laffer by right-wing simpletons. Gist (2018) is here: https://www.gla.ac.uk/media/media_569717_en.pdf
Not my bag this stuff, but over-simplifying to the extreme is a common tactic of the neo-lib-classical cabal. I’d be more interested in how new technology changes the space we could engineer global peace and decent, green lives in. Our standard definitions could change in such space. Best get your laffing tackle round a few at this event Richard!
The Gist paper is enough to give a BA graduate like myself nightmares. Even the conclusions seem encoded in rather wordy language.
I could just about get the ‘gist’ of it one might say.
There is one phrase that stuck in my mind:
‘..previous literature significantly under estimates the sustainable level of government debt and overstates welfare losses’. I’m not sure what ‘welfare’ means in this context.
I would like to see a pod cast of your debate with Laffer. I have always thought that Laffer has a point worthy of debate, but that it is grossly over-stated and is like much modern heterodox thinking in that once you chip away at the assumptions and identify what is left out, you are left with something much less substantial as an argument.
Tax havens and the moving of money sideways rather than down is something that the theory does not even consider. Nor does it seem to consider where the tax take is.
I very much expect this to be put on line
Identifying what is left out is generally key. Unfortunately some decide what to exclude to make their sums work. Not taxing and at the same time expanding military spend generally leads to debt problems. A serious equation in the Laffer area needs establishing without crass supply side and rich owner ideology.
I would like ask Mr Laffer one simple question, why do the rich ( multi millionaires and multi billionaire ) need such large tax cuts to create jobs which Mr Laffer claims, they already have vast amounts of wealth and assets, why can’t they generate the jobs and wealth with the vast amounts of wealth they have at their disposal.