Laffer again

Adding to Alan and Steve’s comments this morning on Art Laffer’s excellent AFR op-ed I thought I’d show some graphs supporting his comments:

Not since the economic boom following 1945 have Americans seen such a rapid decline in the government’s claim on the nation’s resources – falling by a welcome $US94 billion over two years. You need to go back to the end of the Korean war to find a time when US government spending has actually declined over two years. If Republicans in the House stick to the sequester and future caps already built into current budget law, federal spending will stay at this low level for years to come.


That is good – but there is plenty more to be done.

It is clear, now, that a massive stimulus administered was an abject failure. It condemned America to the worst recovery in its history – including the 1930s. But when politicians make decisions while either panicked or drunk, the consequences are rarely edifying or attractive. US Treasury secretary Hank Paulson hyperventilating before Congress to pass his three-page stimulus bill granting him total authority to spend $US700 billion to save the economy was a sight to behold. Why, he even insisted the need was so urgent that there was no time for hearings, reviews or oversight. And passed it was – with some $US2.8 trillion additional stimulus funds over the coming few years. And what happened? American unemployment levels soared.

We’ve all see this before, but to remind ourselves.

With Without Recovery Plan

Last word to Laffer:

The Keynesians warned that the post-Cold War spending cuts that occurred under President Clinton would cause economic contraction – instead we had an employment boom to match all booms. A, Obama’s economists revved up their economic model to justify spending an additional $US830 billion in stimulus, saying it would keep unemployment low. Without a stimulus, they said, joblessness would be 8 per cent. Instead of making things better, subsequent joblessness was higher than they predicted, peaking at 10 per cent.

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2 Responses to Laffer again

  1. Louis Hissink

    Given Lenin’s view ” “the way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation”, and given that the political left, globally, continues to hate the bourgeoisie or the middle class, you have to wonder whether the Keynesians are fully aware of their policies and the outcomes in the grand scheme of things in their progress to socialist utopia, or whether they are Keynesians because they are actually just plain stooped (apologies to Victor Borge).

    Things get dangerous when the stoopid are also politically cunning.

    These are very interesting times.

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