Cross-posted at Tall Tales
Few Americans have heard of Arthur Laffer, but he is quite possibly the most influential supply-side economist of the modern Republican era. He is the namesake of the "Laffer Curve," which has been used to justify Republican tax breaks for the wealthy since the early 1980s, and the Wall Street Journal's Steven Moore has described Laffer as "the godfather of supply-side economics."
Here's Laffer, discussing the Bush economy just 10 months ago:
The economy has done so well. It’s the best performing economy ever on earth.
And here's Laffer today, in the pages of the Wall Street Journal:
The Age of Prosperity Is Over
This administration and Congress will be remembered like Herbert Hoover.
... Twenty-five years down the line, what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932.
Laffer's comparison of Bush to Hoover is particularly stunning given (1) that Bush's principal economic policy was Laffer-inspired tax cuts, and (2) Laffer's lengthy paper trail of praising the Bush economy in the recent past.
In addition to the aforementioned quote calling the Bush economy the "best ever on earth," here are some other Laffer gems from recent years:
George W. Bush could well turn out to be the best president in recent history.... Supply-side pro-growth economics couldn’t ask for a better champion—nor could any American.
- February 15, 2005
When you look at the U.S. economy today, I’m going to tell you there has never been an economy on planet earth that is performing as well as this one.
- June 2, 2006
I’ve never seen the U.S. stock market so well positioned as it is now.
- January 19, 2007
So, according to Laffer in 2005, 2006 and 2007, the Age of Prosperity was in full swing, and better times were ahead for the stock market.
Sounds a little like ... wait for it ... pre-crash Herbert Hoover!
But don't mind that. Laffer's got a new spin.
See, according to Laffer, the problem wasn't seven years of reckless deregulation and trickle-down tax cuts. The problem wasn't destructive mortgage lending, Wall Street speculation and pyramids of risky debt.
No, in his view, the problem is all about what "George W. Bush, Nancy Pelosi, Harry Reid, Ben Bernanke, Barack Obama [and] John McCain" have done in response to the fiscal crisis in recent months.
Never mind the unregulated credit default swap market -- the "$55 trillion market at the heart of almost every big corporate failure and near-collapse of recent months" -- Laffer instead lays the blame for the end of prosperity at the feet of the $170 billion stimulus package last spring and a proposed $300 billion stimulus package for 2009.
Basic math is clearly not Laffer's strong suit.
Nor, apparently, is history.
Hoover's historical legacy is one of refusing to take effective action after the stock market crash of 1929, reassuring the county that the "fundamental business of the country" remained "sound," and keeping on for three more years Treasury Secretary Andrew Mellon, a "passionate advocate for inaction" and the original father of supply-side economics.
Laffer flips that legacy on its head and actually argues that by taking action in 2008 to confront the fiscal crisis, the Democratic Congress is emulating what "Herbert Hoover did in the years 1929 through 1932."
Nice try.
What the Democratic Congress is actually emulating is what began in the summer of 1932 -- a revolt against the inaction and regressive policies of the Hoover administration, and the adoption of active and progressive government intervention.
First, with the Revenue Act of 1932, Congress rejected the Hoover Administration's sales tax proposal and instead raised taxes on the wealthy, taxes on corporations and the estate tax. And, contrary to the revisionist history of Laffer and his ilk, this tax policy change neither caused the Depression nor made it worse. Indeed, the first day for filing taxes under the new rates was March 14, 1933 -- three and a half years after the 1929 crash; a week after Hoover had left office; and several months after the worst of the Depression had passed.
Following the move to a more progressive tax system in 1933, and the aggressive action that characterized the New Deal programs in the coming years, America went on to build the largest middle class the world had ever known under Roosevelt, Truman and Eisenhower while maintaining -- and, indeed, increasing -- the tax rates on high-income earners (top marginal rates were over 90% under Ike.)
That is the history.
There is an admirable Republican model to emulate in this history (Ike), but McCain has chosen to reject that model for the Coolidge-Hoover-Mellon-Bush-Laffer trickle-down philosophy that has led America into its two greatest economic crises over the past century.
Meanwhile, Laffer's own forthcoming book title -- "The End of Prosperity: How Higher Taxes Will Doom the Economy - If We Let it Happen" -- can't be reconciled with his op-ed today, where he argues that the Age of Prosperity is already over, even though taxes for the wealthy are at historical lows.
Just as the artificial "Age of Prosperity" in the 1920s ended in a crash and depression that led the country to turn its back on trickle-down economic policies, the artificial "Greatest Economy Ever on Earth" in the Bush/Laffer era has ended in a crash and severe recession that once again calls for an unequivocal repudiation of trickle-down economics.
That repudiation begins next Tuesday.
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Laffer quotes collected in Yeah, Right: "This Economy Is Strong" and Other Tall Tales
(pages 51, 52, 60 & 61)
Online Sources: February 2005; June 2006; January 2007; December 2007
Source for quote about Andrew Mellon: Robert S. McElvaine, The Great Depression (1984), pp. 75-76 (Three Rivers Press Edition, 1993) (quoting John Kenneth Galbraith)
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