Arthur Laffler: We've Cut Rates, Now Let's Cut Taxes

Wall Street Journal ^ | Nov 11, 2002 | Arthur Laffler

[The Raven]

The Federal Reserve has been cutting the discount rate in fits and starts since late 2000 and yet the economy and the stock market continue to languish. Now in one grand flare of dramatic excess the Fed has cut the discount rate and the federal funds target rate by an amazing 50 basis points. The discount rate is at an unbelievable low of 0.75%.

[The Raven]

>>Fed is a market follower not a market leader<<

I didn't know this until I read one of his previous columns. The Fed actually "reacts" to the interest rates and doesn't actually set them.

As far as tax cuts, IMHO, the reason the Reagan revolution didn't also eliminate Democrats from the face of the earth is that the spending wasn't checked - eventually leading to tax increases. Now that we have the Republican trifecta, let's go for it.

[Moonman62]

Laffer is a really important person in the history of modern supply-side economics, and he makes some good points in the article, but he also says some things that makes me think he was drunk when wrote it. For instance, the Fed does much more than jawbone the fed funds rate.

You bring up the point that the Fed is a market follower. Well, that's true in the best of cases. For the past seven years or so, Greenspan has ignored the market completely.

[Deuce]

We've Cut Rates, Now Let's Cut Taxes

To make it obvious to everyone that neither of these will have any positive effect so people will finally start listening to the Austrians?

[Mind-numbed Robot]

We've Cut Rates, Now Let's Cut Taxes

To make it obvious to everyone that neither of these will have any positive effect so people will finally start listening to the Austrians?

I humbly disagree. We should give money to the spenders, not the lenders. Nothing moves until someone buys something and to buy they need money. From this first step all else evolves.

[Free the USA]

http://www.freerepublic.com/perl/bump-list

[eno_]

Plus there is a lot more efficient value-creation in the private sector. If we cut government share of GDP to 1950's levels, we would have a new Golden Age.

[CPT Clay]

Remove the double taxation of dividends bump

[CPT Clay]

Partial privatization BUMP!!!!

[The Raven]

>>For the past seven years or so, Greenspan has ignored the market completely

No - not that market.....The fed is reacting to the interest rate market.....if they did nothing - the market rate would be too far away from their prime rate...so they adjust it. I'll see if I can find the article explaining that and post it here.

[Moonman62]

I didn't mean that market. Greenspan has ignored the yield curve, market prices for commodities, and the consumer price index.

Before 1995/96 he did a fairly good job of using a price rule for interest rates.

[Moonman62]

We should give money to the spenders, not the lenders.

We need to allow investors to keep more of their money. The government's already given more money to the spenders with tax rebates. That's known as demand management, and it always fails in the long run, as we are seeing once agian.

[Moonman62]

The Austrians are liquidationists, who believe that austerity and human misery are the cure. The only reason the Austrians look good now is because of The Rove Administration's gawdawful demand management policies, and tolerance of burdensome regulations.

[Deuce]

The Austrians are liquidationists, who believe that austerity and human misery are the cure.

You first have to recognize the disease: the initial "high" that the credit bubble induced. While others are figuring out whether to shoot up between the toes or in the arm, the Austrians explain the obvious: cold turkey withdrawal is the only cure for heroin addiction. The so-called "cures" recommended by others seek to prolong the addiction.

[phothus]

He had an article on how the market moves and forces the Fed to follow.. sometime in early 2001, I think... it was published in the WSJ also... not sure if I have a copy, though...

[Moonman62]

New investment will create new jobs, and fill excess capacity. New jobs mean more income, which means the cycle of new investment, new jobs, and new demand will continue. That's not addiction, that's the way the real economy works. One of the many mistakes the Austrians make is to look at the growth of debt without comparing it to the growth of revenue, or adjusting it for interest rates. They position themselves correctly as anti-Keynesians, while making the huge mistake by denying that supply-siders even exist.

The Austrians seek to prolong human misery, and they think the Great Depression is the best thing that ever happened to our economy.

[Fiddlstix]

Bump

[Deuce]

New investment will create new jobs, and fill excess capacity. New jobs mean more income, which means the cycle of new investment, new jobs, and new demand will continue.

You're more likely to get inflation, fraud, malinvestment, and, ultimately hyper-inflation until the excesses of the past boom are wrung out of the system.

The Austrians seek to prolong human misery, and they think the Great Depression is the best thing that ever happened to our economy.

Is that your best understanding of the Austrian School?

[Moonman62]

You're more likely to get inflation, fraud, malinvestment, and, ultimately hyper-inflation until the excesses of the past boom are wrung out of the system.

Why? How do you measure excess? What's the current measurement? What value of excess indicates that we've gone through enough liquidation? Do you use a static model, or do you take into account effects caused by changes in government policy and economic growth? How about the unpredictable effect of irrational people like Michael Dell, and Bill Gates who started their companies against all odds?

What was the measure when Reagan took office? What was it when the stock market responded positively to his economic policies?

[Deuce]

Moonman62: Why does a boom creates speculation, fraud, mal-investment, inflation, and, in the absence of gold, perhaps hyper-inflation?

Answer: Human nature as reflected in history, over and over, without exception.

Moonman62: How do you measure excess?

Answer: You don’t measure it but there are plenty of indicators: increase in money supply, speculative bubbles, financialization of economy, hype of new technology, people talking about “this time it’s different”, insiders bailing out leaving the public holding the bag, etc.

Do you use a static model…

Human nature and history. The patterns are relatively invariant and difficult to ignore.

[Phaedrus]

...the president, with his new-found majority in Congress, could succeed in major tort reform...

The regulatory and litigation burdens on the economy are immense -- in the hundreds of billions of dollars annually, at least. Remove these, and watch us fly.