Annals of Bad Economic Contrarianism

30 Oct

The Economist sidesteps the supply-side debate:

THE RECENT jihad against supply-side fiscal thinking is, as far as I can tell, largely an attempt to distract people from the rather impressive distortionary effects of tax increases. Whether or not tax cuts “pay for themselves” in the short run, it remains that tax increases don’t raise as much revenue as one might hope, and, yes, may be completely self-defeating in the middle to long run. The main point of supply-side thinking is already part of conventional professional wisdom, so it really is quixotic to rail against it.

Beginning your argument with “whether or not tax cuts pay for themselves in the short run” ignores the costs of lost revenues altogether and does nothing more than avoid the debate.  Increasing deficits can lead to rising interest rates and lower capital investment (which is bad for economic growth).  Even assuming a given tax increases is a disincentive for economic growth, it still stacks up better than a revenue draining tax cut that also discourages economic growth.  At least such a tax increase (inefficient as it might be) would be revenue neutral at worst.  Additionally, calling attacks on the Laffer curve “quixotic” misses the entire reason for publicizing the power supply-siders have on the Republican party: to combat the conventional wisdom.

Asking how a tax-cut will affect government revenue isn’t an attempt to distract–its a negative argument .  One can believe the Laffer curve is more economic prestidigitation than tax policy without buying into an uncritical positive argument about the efficiency of tax increases.

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One Response to “Annals of Bad Economic Contrarianism”

  1. Matt Zeitlin October 31, 2007 at 3:38 am #

    In fairness to the excellent publication that is the Economist, it wasn’t “them” per se that put up that post, but Will Wilkinson.

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