It was a little crowded on
the trail this week. I went hiking with Arthur Laffer and Stephen
Moore. Actually, I was out hiking while listening to their book, Return
to Prosperity: How America Can Regain Economic Superpower Status.
That sounds like something that we could sure use about now. So, I was
glad to have them along and eagerly listened to their story.
First, I should introduce
them in case you haven’t met them yet. Moore is an economist who
writes for the Wall Street Journal, and you may see him on some TV talk
shows. You may remember Dr. Laffer as being part of Ronald Reagan’s team
where he came up with the theory of Supply Side Economics. That
theory is often associated with Austrian economic thought of Ludwig von Mises
and Friedrich Hayek. This book is a follow on to their previous book "End
of Prosperity" with a series of suggestions for how the United States can
escape what is turning into a fiscal nightmare.
With the US economy flat on
its back, unemployment at a twenty-five-year high, housing still in the dumps,
and a debt crisis, I am eager to learn how America can become the land of
economic opportunity and prosperity again.
Laffer and Moore argue that
good economics is simply the application of relatively easy to understand
principles to solve problems in political economy. They believe that we have
mistakenly followed big government Keynesian economics for too many years. They advocate free markets and limited
government in line with Hayek’s philosophy.
Laffer, who helped design
the policies that pulled America out of the low-growth, high-inflation 1970s
and put the economy on the track that led to twenty-five years of prosperity,
presents a strong prescription for restoring America’s economic health.
Laffer asserted that the Bush and Obama administrations are failures
because they have given us trillions of dollars of debt.
Laffer and Moore believe the common sense principles of good
economic behavior that they lay out must be made in Fiscal Policy, Monetary
Policy, Trade Policy, and Incomes Policy to get the U.S. economy growing again. They presented an urgently needed
road map to recovery.
Laffer and Moore are very disappointed with
President Obama’s belief in Keynesian economics and government control of so
much of the ecomony. Laffer believes that Obama is a very smart man, but
Obama’s policies are counter productive to his own stated agenda.
Laffer and Moore offer numerous examples of how Obama's policies frustrate economic recovery. For example, Obama’s goal of "energy independence" ignores the benefits of trade and the comparative advantages that come from it. Generally speaking, if some parts of the world are oil rich but consumer poor, it is in the interest of both the US and these other countries to trade. But Obama's policies compound the problem by actually limiting the productive ways we could achieve greater energy independence.
Laffer and Moore offer numerous examples of how Obama's policies frustrate economic recovery. For example, Obama’s goal of "energy independence" ignores the benefits of trade and the comparative advantages that come from it. Generally speaking, if some parts of the world are oil rich but consumer poor, it is in the interest of both the US and these other countries to trade. But Obama's policies compound the problem by actually limiting the productive ways we could achieve greater energy independence.
The Obama administration is
actively opposing off shore drilling. Obama assumes that by doing so he
is helping protect the environment. What he fails to recognize is that
oil demand does not diminish just because the United States declines to access
its reserves. If we do not, other countries, many of whom do not have the
environmental protections that we do, will drill. Indeed, even as the US has
failed to drill off the shores of Florida, the Cubans have done so.
The Obama administration is
also opposed to nuclear energy, one of the few forms of energy production with
minimal carbon emissions. Laffer and Moore are neutral on the
"science" of global warming, but for the sake of discussion assumes
that limiting carbon emissions is a legitimate policy goal. Nuclear
energy could easily be used in the United States to supplant power facilities
that burn coal and other fossil fuels.
And the criticisms that
Laffer and Moore offer of Obama's energy policy are extended to Obama’s approach
on health care, "job creation," and government stimulus bills.
However, most of the book
concerns tax policy, which is more or less what one would expect of supply side
scholars. Laffer and Moore are adamant that the efforts to increase taxes
on the wealthy (those making more than $250,000 a year) and limit or cut taxes
on the poor and middle class is counter productive. In classic supply side
fashion, Laffer and Moore argue that raising taxes on the wealthy
simultaneously reduces tax revenue from them and also short circuits economic
growth. Nor do they think a tax increase will result in increased revenue for
the government.
The bulk of Laffer and
Moore's book is arguing for substantive tax reform as opposed to merely cuts.
Laffer and Moore suggest the US abandon its current tax code in favor of a flat
tax on income with almost no deductions. They do make an exception for mortgage
interest, but that is about it. They even suggest taxing unrealized capital
gains yearly, a modification that would do more to "soak the rich"
than even the most extreme demands for a tax increase on "those making
more than $250,000." The bill for Warren Buffet alone would run into the
billions (which would make me happy). They believe that a flat tax
would have a number of advantages over our current tax code, the most obvious
being that it would give the markets a degree of certainty they lack now and
would encourage, rather than discourage, growth. Laffer and Moore even propose
rolling the payroll tax into the flat tax.
Laffer and Moore then
described in great detail how the federal government can actually receive more
money by reducing taxes, a concept obviously not shared by our leaders in
Washington DC today.
I was surprised at how
non-partisan Laffer and Moore were in their comments and observations. They
looked back to JFK, applauding him for departing from the policies of
Eisenhower and slashing taxes. I had assumed that supply side economists have a natural
alignment with the political right, and I was surprised by the praise Laffer
and Moore give to the presidency of Bill Clinton and even the ideas of Al Gore. They
praised Reagan and Clinton alike for their reduction in taxes and stimulation
of the economy.
I was also surprised at
their recommendations that we need to start trading with North Korea and
Cuba. I was not surprised that they dislike unions, despise stimulus
packages, love the flat tax and espouse offshore drilling in the Gulf of
Mexico.
I thought these two authors
were fiscal and political conservatives until I read their acceptance of global
warming and carbon "credits." I was not happy to hear that they
think the United States needs a so-called
"carbon tax." That was a big turnoff. That
discussion makes the book rather dated as no one is talking about such an
expensive tax in this rotten economy.
At the end of our
hike on the trail, I told them that they had made me a strong believer that now
is the time for a flat tax.
We parted company, and now I want to learn more about the flat tax. I think my next hike should be with a flat
tax advocate. Do you know any?
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.