Laffer Curve Ball

It's baaa-aack!

   Remember supply side economics, the idea that if you make it, they will buy?
   Remember the Laffer Curve, the principle set forth by economist Arthur Laffer that if you cut taxes, producers will reinvest the money and make so much more stuff that prices will come down, people will buy more and the economy will surge?
   Remember the label "voodoo economics," put on the plan by the elder George Bush back in the Reagan era?
   
   It's back, now resurrected by the zombie in chief and his minions, who insist that the tax reform plan outlined Wednesday will bring prosperity to everyone and push national output (GDP) easily above a 3 percent growth rate, as promised by the candidate during the campaign, and perhaps even double that rate.
   One of the big advantages cited at the announcement was that under this "massive" tax cut proposal, families with an annual income of $24,000 a year or less will pay no income tax.
   Big deal. That's true now, and for a family of four, that's barely above the poverty level.
   
   As for a surge in the growth rate of Gross Domestic Product  to more than 3 percent, that's dangerous and unsustainable. The U.S. is already a mature economy, and a higher growth rate will only lead to labor shortages, inflation and eventual recession, if not collapse.
   Yes, it's true that some nations -- China, for example -- are currently enjoying a growth rate of as much as 7 percent, but considering where its economy was, that's understandable. There was plenty of room to grow as the nation moved from a largely agricultural, if not medieval, status, to a modern industrial economy.
   The U.S. and other advanced economies had already gone through that process, so expansion must be tempered with caution.
   And that's where the Federal Reserve comes in.
   The American economy has been recovering from the Great Recession for several years, and the Fed has been monitoring its progress with an eye to tapping the inflation brakes to prevent a too-rapid expansion.
  But the nation may well face a conflict between a central bank that cherishes its independence and an administration that wants to bring the Fed under its control as it pushes for lower taxes, less regulation and surging economic growth.
   As for supply side economics, so warmly embraced by conservatives and corporate mavens and encapsulated by the slogan "If you make it, they will buy," remember this: Without jobs and adequate wages, "they" won't be able to buy anything, no matter how much is produced.
   Better to focus on demand side economics.
    The Laffer Curve Ball misses the strike zone, since it assumes supply side beneficiaries will use the money to expand production and reduce prices. More likely, they will stash the money in corporate bank accounts, boost investor dividends, increase executive bonuses, and buy back stock to "increase shareholder value."
   As the railroad executive William Henry Vanderbilt said many years ago, "The public be damned, I'm working for my stockholders."