Tuesday, August 7, 2012

The WSJ Gives Another Economist An Opportunity To Embarrass Himself

Arthur Laffer is the economist who gave us the Laffer Curve.  His curve shows the relationship between tax rates and government tax income.  At some point on the curve higher tax rates lead to lower tax income.  The problem with the Laffer curve is that one cannot determine the inflection point in which the relationship between the tax rate and tax income becomes negative.  That didn't stop Republicans from using the "Laugher" curve to tell everyone that lowering the tax rate would increase tax revenue by expanding the economy.

The WSJ gave Laffer a chance to produce another Laugher moment in this op-ed.  This time Laugher uses statistics to show us that there is a negative relationship between the amount of fiscal stimulus and economic growth.  His misuse of statistics is made laughable in this critique.  Unfortunately, the war against the use of fiscal stimulus in a recession will continue.  The government should not intervene in a recession to restore employment because market forces are all that is necessary.

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