More on the Laffer Curve

I recently discovered another tidbit that points out the lunacy of the Laffer Curve. Harvard economist Greg Mankiw – former Chairman of George W. Bush’s Council of Economic Advisorsquotes David Stockman, who was telling a story about Ronald Reagan:

[Reagan] had once been on the Laffer curve himself. “I came into the Big Money making pictures during World War II,” he would always say. At that time the wartime income surtax hit 90 percent. “You could only make four pictures and then you were in the top bracket,” he would continue. “So we all quit working after four pictures and went off to the country.” High tax rates caused less work. Low tax rates caused more. His experience proved it.

But that example is irrelevant to the actual economy. Movie actors can stop making movies when they feel like it. But people with real jobs, even big shots on Wall Street or in venture capital, or entrepreneurs, like John McCain’s “Joe the plumber” from last night’s debate, can’t just stop working in the fall when they’ve earned enough money. In the real world, you keep working all year, even if you don’t need the money you’ll make in those last two months, because you’ll lose your job if you stop working, or because your employees need the money even if you don’t. The fact that the Reagan economic plan, and thus Republican orthodoxy, was built on the unusual case of movie star economics is profoundly disturbing.


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