Monday, 7 February 2011

The Witchdoctor

Inevitably there has been a flurry of commentary to mark the centenary of the birth of Ronald Reagan born 6 February 1911.

Much of it recalls his commitment to the Laffer Curve; the proposition that cutting taxes will increase revenues due to the incentive effects unleashed on the economy. Despite the overwhelming evidence accumlated against it, supply side economics has proved the most durable of economic shibboleths. Why? Well as Paul Krugman has pointed out, any argument that says cutting the tax contribution of the rich and powerful is good for the economy is pretty much guaranteed a permanent constituency. It is also comforting for the lazy and/or intellectually insecure (Institute of Directors please step forward!); economics is a technical subject that very many people (myself included) find difficult. But why bother when tax cuts can be prescribed for each and every economic ill?

I didn't catch all of the BBC 4's Storyville: Reagan an American Idol last night but I did catch some of the section on economics. After so many years of reading about him, it was fun to observe the bold Arthur Laffer pontificating on the wonders of Reaganomics. He didn't disappoint. His delivery was as frenzied as his beliefs were undiluted. It's worth a look to contrast with, for instance, Simon Johnston's careful demolition of the orthodoxies which underpinned the adminstration and undermined long-run US growth.

Of course, the Laffer Curve, trickle down economics, call it what you will, is one of the great zombie ideas: it doesn't matter how often it's killed by evidence, it just keeps on getting up and mouthing its simplistic nonsense - usually through the mouths of business lobbyists.

For anyone interested, the best rebuttal of the myth of Reagan's economic success is Krugman's Peddling Prosperity (he also has a go at Clinton's 'strategic traders'). There was also an interview with Yves Smith at the weekend explaining why Reagan was bad for the US and why he was never actually interested in free markets; only enriching his business buddies. Well worth a look. And try this if you're looking for a soundtrack...

Stephen Boyd - STUC

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