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Arthur Laffer: The Real "Stimulus" Record, All Losses, Every Last One.
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Aug 7, 2012, 2:18:53 AM8/7/12
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http://online.wsj.com/article/SB10000872396390444873204577537244
225685010.html?mod=googlenews_wsj
By ARTHUR B. LAFFER
Policy makers in Washington and other capitals around the world
are debating whether to implement another round of stimulus
spending to combat high unemployment and sputtering growth
rates. But before they leap, they should take a good hard look
at how that worked the first time around.
It worked miserably, as indicated by the table nearby, which
shows increases in government spending from 2007 to 2009 and
subsequent changes in GDP growth rates. Of the 34 Organization
for Economic Cooperation and Development nations, those with the
largest spending spurts from 2007 to 2009 saw the least growth
in GDP rates before and after the stimulus.
The four nations�Estonia, Ireland, the Slovak Republic and
Finland�with the biggest stimulus programs had the steepest
declines in growth. The United States was no different, with
greater spending (up 7.3%) followed by far lower growth rates
(down 8.4%).
Still, the debate rages between those who espouse stimulus
spending as a remedy for our weak economy and those who argue it
is the cause of our current malaise. The numbers at stake aren't
small. Federal government spending as a share of GDP rose to a
high of 27.3% in 2009 from 21.4% in late 2007. This increase is
virtually all stimulus spending, including add-ons to the
agricultural and housing bills in 2007, the $600 per capita tax
rebate in 2008, the TARP and Fannie Mae and Freddie Mac
bailouts, "cash for clunkers," additional mortgage relief
subsidies and, of course, President Obama's $860 billion
stimulus plan that promised to deliver unemployment rates below
6% by now. Stimulus spending over the past five years totaled
more than $4 trillion.
If you believe, as I do, that the macro economy is the sum total
of all of its micro parts, then stimulus spending really doesn't
make much sense. In essence, it's when government takes
additional resources beyond what it would otherwise take from
one group of people (usually the people who produced the
resources) and then gives those resources to another group of
people (often to non-workers and non-producers).
Often as not, the qualification for receiving stimulus funds is
the absence of work or income�such as banks and companies that
fail, solar energy companies that can't make it on their own,
unemployment benefits and the like. Quite simply, government
taxing people more who work and then giving more money to people
who don't work is a surefire recipe for less work, less output
and more unemployment.
Yet the notion that additional spending is a "stimulus" and less
spending is "austerity" is the norm just about everywhere.
Without ever thinking where the money comes from, politicians
and many economists believe additional government spending adds
to aggregate demand. You'd think that single-entry accounting
were the God's truth and that, for the government at least,
every check written has no offsetting debit.
Well, the truth is that government spending does come with
debits. For every additional government dollar spent there is an
additional private dollar taken. All the stimulus to the
spending recipients is matched on a dollar-for-dollar basis
every minute of every day by a depressant placed on the people
who pay for these transfers. Or as a student of the dismal
science might say, the total income effects of additional
government spending always sum to zero.
Meanwhile, what economists call the substitution or price
effects of stimulus spending are negative for all parties. In
other words, the transfer recipient has found a way to get paid
without working, which makes not working more attractive, and
the transfer payer gets paid less for working, again lowering
incentives to work.
But all of this is just old-timey price theory, the stuff that
used to be taught in graduate economics departments. Today, even
stimulus spending advocates have their Ph.D. defenders. But
there's no arguing with the data in the nearby table, and the
fact that greater stimulus spending was followed by lower growth
rates. Stimulus advocates have a lot of explaining to do. Their
massive spending programs have hurt the economy and left us with
huge bills to pay. Not a very nice combination.
Sorry, Keynesians. There was no discernible two or three dollar
multiplier effect from every dollar the government spent and
borrowed. In reality, every dollar of public-sector spending on
stimulus simply wiped out a dollar of private investment and
output, resulting in an overall decline in GDP. This is an even
more astonishing result because government spending is counted
in official GDP numbers. In other words, the spending was more
like a valium for lethargic economies than a stimulant.
In many countries, an economic downturn, no matter how it's
caused or the degree of change in the rate of growth, will
trigger increases in public spending and therefore the
appearance of a negative relationship between stimulus spending
and economic growth. That is why the table focuses on changes in
the rate of GDP growth, which helps isolate the effects of
additional spending.
The evidence here is extremely damaging to the case made by Mr.
Obama and others that there is economic value to spending more
money on infrastructure, education, unemployment insurance, food
stamps, windmills and bailouts. Mr. Obama keeps saying that if
only Congress would pass his second stimulus plan, unemployment
would finally start to fall. That's an expensive leap of faith
with no evidence to confirm it.
Mr. Laffer, chairman of Laffer Associates and the Laffer Center
for Supply-Side Economics, is co-author, with Stephen Moore, of
"Return to Prosperity: How America Can Regain Its Economic
Superpower Status" (Threshold, 2010).
225685010.html?mod=googlenews_wsj
By ARTHUR B. LAFFER
Policy makers in Washington and other capitals around the world
are debating whether to implement another round of stimulus
spending to combat high unemployment and sputtering growth
rates. But before they leap, they should take a good hard look
at how that worked the first time around.
It worked miserably, as indicated by the table nearby, which
shows increases in government spending from 2007 to 2009 and
subsequent changes in GDP growth rates. Of the 34 Organization
for Economic Cooperation and Development nations, those with the
largest spending spurts from 2007 to 2009 saw the least growth
in GDP rates before and after the stimulus.
The four nations�Estonia, Ireland, the Slovak Republic and
Finland�with the biggest stimulus programs had the steepest
declines in growth. The United States was no different, with
greater spending (up 7.3%) followed by far lower growth rates
(down 8.4%).
Still, the debate rages between those who espouse stimulus
spending as a remedy for our weak economy and those who argue it
is the cause of our current malaise. The numbers at stake aren't
small. Federal government spending as a share of GDP rose to a
high of 27.3% in 2009 from 21.4% in late 2007. This increase is
virtually all stimulus spending, including add-ons to the
agricultural and housing bills in 2007, the $600 per capita tax
rebate in 2008, the TARP and Fannie Mae and Freddie Mac
bailouts, "cash for clunkers," additional mortgage relief
subsidies and, of course, President Obama's $860 billion
stimulus plan that promised to deliver unemployment rates below
6% by now. Stimulus spending over the past five years totaled
more than $4 trillion.
If you believe, as I do, that the macro economy is the sum total
of all of its micro parts, then stimulus spending really doesn't
make much sense. In essence, it's when government takes
additional resources beyond what it would otherwise take from
one group of people (usually the people who produced the
resources) and then gives those resources to another group of
people (often to non-workers and non-producers).
Often as not, the qualification for receiving stimulus funds is
the absence of work or income�such as banks and companies that
fail, solar energy companies that can't make it on their own,
unemployment benefits and the like. Quite simply, government
taxing people more who work and then giving more money to people
who don't work is a surefire recipe for less work, less output
and more unemployment.
Yet the notion that additional spending is a "stimulus" and less
spending is "austerity" is the norm just about everywhere.
Without ever thinking where the money comes from, politicians
and many economists believe additional government spending adds
to aggregate demand. You'd think that single-entry accounting
were the God's truth and that, for the government at least,
every check written has no offsetting debit.
Well, the truth is that government spending does come with
debits. For every additional government dollar spent there is an
additional private dollar taken. All the stimulus to the
spending recipients is matched on a dollar-for-dollar basis
every minute of every day by a depressant placed on the people
who pay for these transfers. Or as a student of the dismal
science might say, the total income effects of additional
government spending always sum to zero.
Meanwhile, what economists call the substitution or price
effects of stimulus spending are negative for all parties. In
other words, the transfer recipient has found a way to get paid
without working, which makes not working more attractive, and
the transfer payer gets paid less for working, again lowering
incentives to work.
But all of this is just old-timey price theory, the stuff that
used to be taught in graduate economics departments. Today, even
stimulus spending advocates have their Ph.D. defenders. But
there's no arguing with the data in the nearby table, and the
fact that greater stimulus spending was followed by lower growth
rates. Stimulus advocates have a lot of explaining to do. Their
massive spending programs have hurt the economy and left us with
huge bills to pay. Not a very nice combination.
Sorry, Keynesians. There was no discernible two or three dollar
multiplier effect from every dollar the government spent and
borrowed. In reality, every dollar of public-sector spending on
stimulus simply wiped out a dollar of private investment and
output, resulting in an overall decline in GDP. This is an even
more astonishing result because government spending is counted
in official GDP numbers. In other words, the spending was more
like a valium for lethargic economies than a stimulant.
In many countries, an economic downturn, no matter how it's
caused or the degree of change in the rate of growth, will
trigger increases in public spending and therefore the
appearance of a negative relationship between stimulus spending
and economic growth. That is why the table focuses on changes in
the rate of GDP growth, which helps isolate the effects of
additional spending.
The evidence here is extremely damaging to the case made by Mr.
Obama and others that there is economic value to spending more
money on infrastructure, education, unemployment insurance, food
stamps, windmills and bailouts. Mr. Obama keeps saying that if
only Congress would pass his second stimulus plan, unemployment
would finally start to fall. That's an expensive leap of faith
with no evidence to confirm it.
Mr. Laffer, chairman of Laffer Associates and the Laffer Center
for Supply-Side Economics, is co-author, with Stephen Moore, of
"Return to Prosperity: How America Can Regain Its Economic
Superpower Status" (Threshold, 2010).
emoneyjoe
Aug 7, 2012, 3:54:19 AM8/7/12
to
'On Tue, 07 Aug 2012 08:18:53 +0200, "Show Valid ID Card If You Want To
>Finland?ith the biggest stimulus programs had the steepest
The Bush stimulus was meant to get money
flowing in the economy, money to spend, by
individuals, most adults.
The last stimulus went to just a few people,
too much for them to spend, and they didn't,
except for the ones who went broke building
buildings instead of making product to sell.
Money has to flow in the system in place,
it isn't flowing fast enough.
People seem to forget that money was
only meant to make trade and commerce
easier, it has now become the major and
most important commodity, and that is
no way to run a country, production is
the primary objective, bring that back
and there can be prosperity.
Which brings up the question,
what to produce.
Vote" <up-y...@barackobama.com> wrote:
>http://online.wsj.com/article/SB10000872396390444873204577537244
>225685010.html?mod=googlenews_wsj
>
>By ARTHUR B. LAFFER
>
>Policy makers in Washington and other capitals around the world
>are debating whether to implement another round of stimulus
>spending to combat high unemployment and sputtering growth
>rates. But before they leap, they should take a good hard look
>at how that worked the first time around.
>
>It worked miserably, as indicated by the table nearby, which
>shows increases in government spending from 2007 to 2009 and
>subsequent changes in GDP growth rates. Of the 34 Organization
>for Economic Cooperation and Development nations, those with the
>largest spending spurts from 2007 to 2009 saw the least growth
>in GDP rates before and after the stimulus.
>
>The four nations?stonia, Ireland, the Slovak Republic and
>http://online.wsj.com/article/SB10000872396390444873204577537244
>225685010.html?mod=googlenews_wsj
>
>By ARTHUR B. LAFFER
>
>Policy makers in Washington and other capitals around the world
>are debating whether to implement another round of stimulus
>spending to combat high unemployment and sputtering growth
>rates. But before they leap, they should take a good hard look
>at how that worked the first time around.
>
>It worked miserably, as indicated by the table nearby, which
>shows increases in government spending from 2007 to 2009 and
>subsequent changes in GDP growth rates. Of the 34 Organization
>for Economic Cooperation and Development nations, those with the
>largest spending spurts from 2007 to 2009 saw the least growth
>in GDP rates before and after the stimulus.
>
>Finland?ith the biggest stimulus programs had the steepest
>declines in growth. The United States was no different, with
>greater spending (up 7.3%) followed by far lower growth rates
>(down 8.4%).
>
>Still, the debate rages between those who espouse stimulus
>spending as a remedy for our weak economy and those who argue it
>is the cause of our current malaise. The numbers at stake aren't
>small. Federal government spending as a share of GDP rose to a
>high of 27.3% in 2009 from 21.4% in late 2007. This increase is
>virtually all stimulus spending, including add-ons to the
>agricultural and housing bills in 2007, the $600 per capita tax
>rebate in 2008, the TARP and Fannie Mae and Freddie Mac
>bailouts, "cash for clunkers," additional mortgage relief
>subsidies and, of course, President Obama's $860 billion
>stimulus plan that promised to deliver unemployment rates below
>6% by now. Stimulus spending over the past five years totaled
>more than $4 trillion.
>
>If you believe, as I do, that the macro economy is the sum total
>of all of its micro parts, then stimulus spending really doesn't
>make much sense. In essence, it's when government takes
>additional resources beyond what it would otherwise take from
>one group of people (usually the people who produced the
>resources) and then gives those resources to another group of
>people (often to non-workers and non-producers).
>
>Often as not, the qualification for receiving stimulus funds is
>the absence of work or income?uch as banks and companies that
>greater spending (up 7.3%) followed by far lower growth rates
>(down 8.4%).
>
>Still, the debate rages between those who espouse stimulus
>spending as a remedy for our weak economy and those who argue it
>is the cause of our current malaise. The numbers at stake aren't
>small. Federal government spending as a share of GDP rose to a
>high of 27.3% in 2009 from 21.4% in late 2007. This increase is
>virtually all stimulus spending, including add-ons to the
>agricultural and housing bills in 2007, the $600 per capita tax
>rebate in 2008, the TARP and Fannie Mae and Freddie Mac
>bailouts, "cash for clunkers," additional mortgage relief
>subsidies and, of course, President Obama's $860 billion
>stimulus plan that promised to deliver unemployment rates below
>6% by now. Stimulus spending over the past five years totaled
>more than $4 trillion.
>
>If you believe, as I do, that the macro economy is the sum total
>of all of its micro parts, then stimulus spending really doesn't
>make much sense. In essence, it's when government takes
>additional resources beyond what it would otherwise take from
>one group of people (usually the people who produced the
>resources) and then gives those resources to another group of
>people (often to non-workers and non-producers).
>
>Often as not, the qualification for receiving stimulus funds is
flowing in the economy, money to spend, by
individuals, most adults.
The last stimulus went to just a few people,
too much for them to spend, and they didn't,
except for the ones who went broke building
buildings instead of making product to sell.
Money has to flow in the system in place,
it isn't flowing fast enough.
People seem to forget that money was
only meant to make trade and commerce
easier, it has now become the major and
most important commodity, and that is
no way to run a country, production is
the primary objective, bring that back
and there can be prosperity.
Which brings up the question,
what to produce.
Nickname unavailable
Aug 7, 2012, 11:52:45 AM8/7/12
to
On Aug 7, 1:18 am, "Show Valid ID Card If You Want To Vote" <up-
has been implemented in America the complete opposite of what supply
siders had promised has occurred:Per-capita economic output increased
an average 10.1% in the 9 high-rate states:average growth rate for the
nine no-tax states was 8.7%
http://www.bloomberg.com/news/2012-06-25/states-lacking-income-tax-get-no-boost-in-growth-bgov-barometer.html
States Lacking Income Tax Get No Boost in Growth: BGOV Barometer
By Brian Chappatta - Jun 24, 2012 11:00 PM CT
Governors seeking to expand their economies by eliminating income
taxes find little support for the idea in the record of U.S. states
that lack such a levy.
The BGOV Barometer shows the nine states with the highest personal
income taxes on residents outperformed or kept pace on average with
the nine that don’t tax their residents’ incomes, according to a study
of economic output, unemployment and household income by the
nonpartisan Institute on Taxation and Economic Policy.
States Lacking Income Tax Get No Boost in Growth
The BGOV Barometer shows the nine states with the highest personal
income taxes on residents outperformed or kept pace on average with
the nine that don’t tax their residents’ incomes, according to a
study.
The findings show cutting state income taxes to stimulate growth
relies on “flawed analysis” based on the theories of economist Arthur
Laffer, said Carl Davis, a senior analyst at ITEP in Washington and
author of the report. Laffer’s work was cited by Republican Governors
Sam Brownback of Kansas and Mary Fallin of Oklahoma as a reason to cut
income taxes as a way to stimulate job growth and attract business.
“Being low-tax doesn’t generate economic competitiveness or long-term
economic viability,” said Ralph Martire, executive director at the
nonpartisan Center for Tax and Budget Accountability in Chicago.
“There are other factors that are far more important. The state tax
burden overall is marginal compared to federal tax burden.”
Nine states have no personal income-tax: Alaska, Florida, Nevada, New
Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. The
nine states defined as “high rate” by ITEP were California, Hawaii,
Maine, Maryland, New Jersey, New York, Ohio, Oregon and Vermont.
Economic Output
Per-capita economic output increased an average 10.1 percent in the
nine “high-rate” states, led by Oregon, which grew 26 percent from
2001 to 2010. New York, Maryland, Vermont, Hawaii and California also
grew faster than the 8.1 percent average for the 50 states.
Among states with no income tax, New Hampshire, Washington, Texas,
Florida, Tennessee and Nevada had growth rates below the 50-state
average, with Nevada’s economy shrinking 2.7 percent during the
period. The average growth rate for the nine no-tax states was 8.7
percent. Three no-tax states grew faster than the national average,
led by South Dakota and Wyoming at 22 percent.
Median household income declined an average 0.7 percent among the nine
“high-rate” states, compared with a 3.5 percent drop in the nine
states without such a levy. The study found no difference in the
average unemployment rate between the two groups of states. The time
period of the report includes the 18- month recession that ended in
June 2009.
Maintaining Spending
“States that have higher overall taxes have better capacity to weather
economic downturns,” Martire said. “Then they can maintain their
spending on the salary of workers, who then go out and spend their
paychecks on the local economy.”
Kansas passed legislation this year that would cut taxes by more than
$760 million a year, though the poorest 20 percent of Kansans, with an
average income of $11,000, will have taxes increased, according to a
separate ITEP report.
The study doesn’t prove that high income taxes will stimulate growth,
ITEP’s Davis said. Rather, it shows “there’s no evidence” that cutting
income taxes will boost growth.
“Those who don’t believe in Santa Claus or the Easter Bunny anymore,
and actually look at facts and data, recognize that since supply-side
economics has been implemented in America, the complete opposite of
what supply siders had promised has occurred,” Martire said.
To contact the reporter on this story: Brian Chappatta in New York at
bchap...@bloomberg.net
To contact the editor responsible for this story: Stephen Merelman at
smer...@bloomberg.net
yo...@barackobama.com> wrote:
>
> Mr. Laffer, chairman of Laffer Associates and the Laffer Center
> for Supply-Side Economics, is co-author, with Stephen Moore, of
> "Return to Prosperity: How America Can Regain Its Economic
> Superpower Status" (Threshold, 2010).
supply-side economics based on the flawed theories of Arthur Laffer
>
> Mr. Laffer, chairman of Laffer Associates and the Laffer Center
> for Supply-Side Economics, is co-author, with Stephen Moore, of
> "Return to Prosperity: How America Can Regain Its Economic
> Superpower Status" (Threshold, 2010).
has been implemented in America the complete opposite of what supply
siders had promised has occurred:Per-capita economic output increased
an average 10.1% in the 9 high-rate states:average growth rate for the
nine no-tax states was 8.7%
http://www.bloomberg.com/news/2012-06-25/states-lacking-income-tax-get-no-boost-in-growth-bgov-barometer.html
States Lacking Income Tax Get No Boost in Growth: BGOV Barometer
By Brian Chappatta - Jun 24, 2012 11:00 PM CT
Governors seeking to expand their economies by eliminating income
taxes find little support for the idea in the record of U.S. states
that lack such a levy.
The BGOV Barometer shows the nine states with the highest personal
income taxes on residents outperformed or kept pace on average with
the nine that don’t tax their residents’ incomes, according to a study
of economic output, unemployment and household income by the
nonpartisan Institute on Taxation and Economic Policy.
States Lacking Income Tax Get No Boost in Growth
The BGOV Barometer shows the nine states with the highest personal
income taxes on residents outperformed or kept pace on average with
the nine that don’t tax their residents’ incomes, according to a
study.
The findings show cutting state income taxes to stimulate growth
relies on “flawed analysis” based on the theories of economist Arthur
Laffer, said Carl Davis, a senior analyst at ITEP in Washington and
author of the report. Laffer’s work was cited by Republican Governors
Sam Brownback of Kansas and Mary Fallin of Oklahoma as a reason to cut
income taxes as a way to stimulate job growth and attract business.
“Being low-tax doesn’t generate economic competitiveness or long-term
economic viability,” said Ralph Martire, executive director at the
nonpartisan Center for Tax and Budget Accountability in Chicago.
“There are other factors that are far more important. The state tax
burden overall is marginal compared to federal tax burden.”
Nine states have no personal income-tax: Alaska, Florida, Nevada, New
Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. The
nine states defined as “high rate” by ITEP were California, Hawaii,
Maine, Maryland, New Jersey, New York, Ohio, Oregon and Vermont.
Economic Output
Per-capita economic output increased an average 10.1 percent in the
nine “high-rate” states, led by Oregon, which grew 26 percent from
2001 to 2010. New York, Maryland, Vermont, Hawaii and California also
grew faster than the 8.1 percent average for the 50 states.
Among states with no income tax, New Hampshire, Washington, Texas,
Florida, Tennessee and Nevada had growth rates below the 50-state
average, with Nevada’s economy shrinking 2.7 percent during the
period. The average growth rate for the nine no-tax states was 8.7
percent. Three no-tax states grew faster than the national average,
led by South Dakota and Wyoming at 22 percent.
Median household income declined an average 0.7 percent among the nine
“high-rate” states, compared with a 3.5 percent drop in the nine
states without such a levy. The study found no difference in the
average unemployment rate between the two groups of states. The time
period of the report includes the 18- month recession that ended in
June 2009.
Maintaining Spending
“States that have higher overall taxes have better capacity to weather
economic downturns,” Martire said. “Then they can maintain their
spending on the salary of workers, who then go out and spend their
paychecks on the local economy.”
Kansas passed legislation this year that would cut taxes by more than
$760 million a year, though the poorest 20 percent of Kansans, with an
average income of $11,000, will have taxes increased, according to a
separate ITEP report.
The study doesn’t prove that high income taxes will stimulate growth,
ITEP’s Davis said. Rather, it shows “there’s no evidence” that cutting
income taxes will boost growth.
“Those who don’t believe in Santa Claus or the Easter Bunny anymore,
and actually look at facts and data, recognize that since supply-side
economics has been implemented in America, the complete opposite of
what supply siders had promised has occurred,” Martire said.
To contact the reporter on this story: Brian Chappatta in New York at
bchap...@bloomberg.net
To contact the editor responsible for this story: Stephen Merelman at
smer...@bloomberg.net
BeamMeUpScotty
Aug 7, 2012, 12:24:08 PM8/7/12
to
On 8/7/2012 11:52 AM, Nickname unavailable wrote:
> On Aug 7, 1:18 am, "Show Valid ID Card If You Want To Vote" <up-
> yo...@barackobama.com> wrote:
>
>>
>> Mr. Laffer, chairman of Laffer Associates and the Laffer Center
>> for Supply-Side Economics, is co-author, with Stephen Moore, of
>> "Return to Prosperity: How America Can Regain Its Economic
>> Superpower Status" (Threshold, 2010).
>
> supply-side economics based on the flawed theories of Arthur Laffer
> has been implemented in America the complete opposite of what supply
> siders had promised has occurred:Per-capita economic output increased
> an average 10.1% in the 9 high-rate states:average growth rate for the
> nine no-tax states was 8.7%
Why are the nine high tax States also headed for bankruptcy?
> On Aug 7, 1:18 am, "Show Valid ID Card If You Want To Vote" <up-
> yo...@barackobama.com> wrote:
>
>>
>> Mr. Laffer, chairman of Laffer Associates and the Laffer Center
>> for Supply-Side Economics, is co-author, with Stephen Moore, of
>> "Return to Prosperity: How America Can Regain Its Economic
>> Superpower Status" (Threshold, 2010).
>
> supply-side economics based on the flawed theories of Arthur Laffer
> has been implemented in America the complete opposite of what supply
> siders had promised has occurred:Per-capita economic output increased
> an average 10.1% in the 9 high-rate states:average growth rate for the
> nine no-tax states was 8.7%
Is that why you hate the idea of spending only what you have.
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