Quote:
Originally posted by Spanky
The key statement you make that refutes your whole point is "regardless of whether or not there is a deficit". Stating that the deficit does not factor in is making a very strong statement on the deficit. Most economists argue that the deficit should have a strong influence on the equation where Laffer says it does not. In other words, he strongly discounts the effect of crowding out, which is where most economists have a strong disagreement with him.
Wrong. Laffer proposed this idea to Reagans people. At the time the country was running huge deficits. Laffer argued that we were above the t* and therefore cutting taxes would increase revenue. Other economists argued that the deficit was already crowding out growth and that a tax cut would further increase the deficit, crowding out even more investment, and therefor would not produce the growth needed to balance the budget. The other economists argued that by balancing the budget with tax increases, we would reduce the crowding out caused by the deficit and thereby increase growth. Laffer said that the crowding out was not that big of a deal and would not effect his curve.
His tax cut would cause growth that would increase revenue and therefore would eventually balance the budget which would eventually reduce the deficit. Thereby we would grow our way out of the deficit. That was the basis of his argument.
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I enjoy the Laffer Curve. You might even call me a student of it, as its the sole element of Econ 101 I was able to coherently discuss in my exams. I somehow worked it into every essay question on every exam. It's a testament to the potency of small batch bourbons and vodka that today, I have no idea what the hell it stood for, other than the conceptual notion that it represented a peak wwhere something worked, after which that something stopped working.
I don't feel so bad about my ignorance.
