The Return of Doctor Weird and the "Laugher Curve"

With millionaire dilettante Ron Johnson confirmed as Wisconsin's new senator elect to the government his own Tea Party professes to disdain, it’s a sure bet we’re gonna be bombarded with a lot of blather about how tax cuts for corporations and the uber-rich are supposed to magically improve employment and erase deficits.  Which is utter batshit lunacy.  But don’t take my word for it—run the numbers yourself.  All within the linked workbook "Laffer Curve Analysis v1".

Dr. Weird and Steve à la Bored Robot

Midterms are over; here begineth the real shitstorm:  the struggle against Right Wing corporatists and faux populists trying to complete their destruction of the United States.

No, that’s not just the Wild Turkey talking.  Haven’t touched the stuff for the better part of a week now.  And though the night terror visions of President Palin’s Interior Secretary Don Blankenship leasing the floor of the House to BP for fracking natural gas and Treasury Secretary Richard Rahn outsourcing the federal minting operations to China have subsided, the daytime terror visions have only grown in intensity.  Unfortunately, I can’t write off as fantasy the almost inevitability of Paul Ryan (R-WI) introducing yet another corporate giveaway bill designed to plunge the nation into chaos.

We’re a nation of diverse ethnic origins, religious and lifestyle choices whose existential center lies firmly within the principles of representative democracy.  Our primary shared institution has always been elected government and it is within that framework that we negotiate all of our relationships beyond our own home parish.  Without those principles and a government through which to put them into effect we’d be nothing more than a mass of warring feudal tribes.  If you think otherwise, I suggest you peruse recent events in Afghanistan or Iraq for a taste of what a total lack of shared non-sectarian institutions can do for a country.

But Republican’ts and other Right Wingers have made no secret that they have a chubby to destroy our society’s central shared institution through defunding.  Quoth Grover Norquist of the Orwellian-ly named ‘Americans’ for Tax Reform:

“I don’t want to abolish government.  I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”1

He’s like some kind of fatass Dr. Weird with 5 o’clock shadow.

So I figure this is probably as good a time as any to share with you what I’ve learned about the naïve and perverse conceptual cornerstone used to propagate the essentially traitorous strategem of defunding:  The Laffer Curve.  The following is an excerpt from the wikipedia discussion of the Laffer Curve.

“In economics, the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation.  It is used to illustrate the concept of Taxable Income Elasticity (that taxable income will change in response to changes in the rate of taxation).”

Basically what they mean to say is that there exists some perfect balance between government and private sector activity which results in the best possible economic development.  Well, no shit, Sherlock.  That’s like saying that there exists some ideal balance between caloric intake and exercise that keeps you from being a fatass.  You didn’t need a Phd to tell you that.  So clearly that’s not what the Bryllcream Brigade over at Faux News and friends mean when they try to sell you on the Laffer Curve. 

What the fuck does this have to do with Paul Ryan’s efforts to destroy America by bankrupting shared government?  Well, it has to do with what he wants you to believe about the curve—not what it actually is.  Laffer curve exponents want you to believe is that a tax cut will invariably result in a clear improvement in the people’s tangible real-world welfare.  You don’t hear them qualifying that claim with phrases like “within certain limits”, “up to a certain point”, or “within the context of a stable and equitable division of social costs, such as health care and infrastructure, between the private and public sectors”.  No you won’t.2 

‘Cause if they’ve even considered those points themselves, they surely don’t want you to.  What they want you to do is accept uncritically the notion that, in the face of the biggest deficit since WWII, immediate and massive tax cuts are actually fiscally responsible and that they will miraculously increase employment and income for the economy as a whole.

I know what you’re thinking; this ghastly idea is a shitstain on the history of public policy ideas and is more or less tantamount to the human sacrifice of our childrens’ economic future to some great Tiki god on Wall Street.  But as long as the country’s collapsing and we have to be along for the ride anyhow, why don’t you and I take a look at this thing for ourselves?

Analysis

I mean, if the ‘Laugher’ Curve was as powerful a predictor of economic performance as its proponents claim it should be obvious, right?  You wouldn’t need to perform some kinda Krazy Kabbalistic Kalkulus.  You could just download some simple benchmark statistics and use standard, off-the-shelf Excel functions to make up your mind for yourself. 

Luckily for us the Laugher Curve is one of the easier loads of shit to dispose of.  Because the claims made are so enormous we can, must even, look at this thing from the 50,000 -foot level.  The analysis is straightforward and the math is easy.

You already know how to add, subtract, multiply and divide two figures together.  Probably the only function you need that you don’t use every day may be the ‘Correl’ function.  And even that’s not tough.  It’s a canned Excel function that allows you to simply calculate how closely one number tracks with another.  All you do is select data from two columns of equal length and let Excel do the rest.  I encourage you to do it yourself at some point just because it’s super useful and so damned easy.  But if it saves you any time you can just look at the figures in the "Laffer Curve Analysis v1" file I’ve linked here.

Yes, it might take you a little time to find the original data.  But there again, I’ve got you covered.  This stuff is put together and published on a regular basis by the non-partisan career professionals in the Office of Management and Budget the Bureau of Labor Statistics.  I’ve got direct links and citations to the underlying data tables directly within my workbook.

I’ve chosen the years 1947 through 2009 to perform this analysis on because it includes all the years about which we have final data and excludes the years 1930-1946, which due to the existential crises of the Great Depression and WWII.  Those years might reasonably be regarded as structurally anomalous, as they not only predate Social Security and Medicare programs but are wildly deviant with regard to the effect of military activity (e.g., federal spending during the years 1941 through 1946 averaged 32% of GDP vs. less than 20% for the years 1947-2009).

We’re going to look at data aggregated at the highest and therefore least biased level possible, which is luckily also the simplest:

1.       Income tax paid by source (i.e., corporate or individual) as a % of GDP.  While our ability to draw super-fine analysis of corporate vs. individual income taxation is impaired by a clear, consistent basis for determining the corporate sector’s share of GDP, the clear disparity between the corporate and individual share of tax paid seems very unfair.  Given the increasing size and influence of corporations since the end of WWII, how is it that they paid 3.7% of GDP in taxes in 1947 but only 1.0% in 2009?  The share paid by individuals moved from 7.7% to 6.4% in the same period.  Obviously a decrease, but a totally bullshit infuriating inequality when considered in proportion to the massive, massive responsibility-shirking corps.

Data from the Office of Management and Budget.

2.       Unemployment.  Pretty straightforward statistic, scaled to the size of the active labor force.  From Bureau of Labor Statistics.

3.       Surplus or deficit as % of GDP.  Also from the Office of Management and Budget.

Correlations are interpreted on a scale from +1 to –1.  That is, at +1 (positive correlation) the numbers track closely, and an increase in one number will show an increase of identical magnitude with the other number.  And at –1 (negative correlation) the numbers also track closely, but an increase in one number will show as a DEcrease in the other number.  Here are the interpretive benchmarks I’ve applied;

Correlation	Interpretation
<-0.749	Strong Negative
<-.049 and >-0.75	Fair Negative
>-0.5 and <0.5	Weak
>0.49 and <0.75	Fair Positive
>0.749	Strong Positive

Since the whole appeal of the Laffer myth is it’s supposed power to create real, unambiguous economic improvement through lowering income tax, I would not accept that any result short of at least BOTH a Fair Positive correlation to unemployment (i.e., lower tax = less unemployment) AND a Fair Negative correlation to deficits (i.e., lower tax = higher surplus or lower deficits).

Conclusion

See for yourself.  That’s why I linked the file here.  Cell I76 on the sheet “Analysis”.

There is just no historical scenario where this Right Wing phantasy about lowering taxes has ever decreased unemployment and deficits.  As David Stockman himself admitted.2  But don’t take my word for it.  Screw around with the figures yourself.  Some douchebags will try to tell you that any tax-based economic stimulus takes a number of years to become effective.  See for yourself just how effective the alternate scenarios are—plug in a hypothetical # of years’ lag time between cuts and benefits within cell J77 on the sheet “Moving Average”.  There is NO WAY this Laffer shit works in the real world.

Recommendations and Follow Up

While this writes a big fuckin’ ‘FAIL’ all over the forehead of the  Paul Ryan pseudo-plan, it does raise several interesting new questions which deserve to be explored further:

1.    Why does our actual experience of slashes in tax for corps and the megawealthy tend to directly CONTRADICT the Laffer Curve?  Why do lower taxes seem to correlate with BOTH higher unemployment AND higher deficits?  Might it have to do with the common sense observation that 1-1=0 rather than =2?  As a matter of fact, apart from the economic collapse initiated under the Dubya years, the 4 worst deficits on record since WWII are 1983 through 1986—the Laffer-driven Reagan years.  Indeed, the worst 4 years for unemployment were also during Republican’t watches—1975-6 (Ford) and 1982-3 (Reagan).

2.    Why, apart from the 2009 legacy of Dubya’s tax cuts, do all the years of the worst corporate/individual tax inequalities fall squarely within Republican’t administrations (1983, 1986, 2002 and 2006, peaking at an all-time high of individuals paying more than 7.6 as much as corps during Reagan’s 1983)?  Do we really want to renew the Dubya era provisions to perpetuate the robbery of families in 2009 when individuals paid 6.4 times as much as corporations did?  Especially when the Dow is even at the time of this writing climbing towards a new all-time high?  Christ, even Stockman thinks that's a horrible idea!

3.    Given all the obvious, unfair con-job bullshit nature of the Laffer Curve, why do we tolerate the perpetuation of this myth in policy discussions?  When some jackass tries to piss on your shoes, why would you bow even lower to allow them to piss all over your jacket?  Why would you even consider voting for a guy like that?

4.    Call and write your representatives and senators immediately and often telling them that you know what a horrible idea it is to extend the Bush era tax cuts.  And let them know that you know what you’re talking about.  Send them a link to our workbook for them to see themselves.  Send them a link to this blog post.  Send them a link to the 2005 Office of Management and Budget Report describing how $0.72 of each dollar in tax cuts is added to the deficit.  Send them a link to the Congressional Budget Office's report that renewal of the Bush era tax cuts would add bring the national debt up to 100% of GDP by 2020.  For God’s sake, don’t keep this shit to yourself.

Footnotes

1         NPR’s Morning Edition, 25 May 2001

2         Well, with the notable exception of David Stockman, Reagan’s former budget director.  He’s gone on record admitting that he raised the subject of the Laffer Curve as a cynical rhetorical tool to achieve Dutch’s anti-government agenda; he himself had serious reservations about the curve’s limits.  http://www.theatlantic.com/198112/david-stockman/  In an interesting side note, one the more romantic among us might be inclined to see as some sort of divine retribution for his role in perpetrating the Laffer hoax, Stockman was indicted on financial fraud charges in 2007.  http://www.bloomberg.com/apps/news?pid=newsarchive&refer=columnist_levin&sid=a.cBZSUCgS3Y