Thursday, July 8, 2010

Allow me to eviscerate

Art Laffler, yes, the Laffler of famed Curve, has an op-ed in today's WSJ.  He pretends to look at some evidence, and concludes that we're only having a recession because the lazy bums don't want to work.

The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view.
He goes on to tell a lovely and plausible story about what would happen if unemployment benefits were $150,000 per year.  This of course, makes his point undeniable.  So I have to agree that we should keep unemployment benefits below this level.  Given that the average check amounts to around $15,000 per year (if you could claim it for an entire year) it looks like there's about a factor of 10 between Dr. Laffler and the truth.  This doesn't stop him from producing "evidence" in the form of the following chart:

This again is quite undeniable. The chart incontrovertibly shows that the government pays more in unemployment if there are more unemployed people.  Science motherfucker!  Put that in your pipe and smoke it you liberal cur!

Honestly though, the whole thing is either so stupid or so evil or so dishonest that I'm already bored with making fun of the guy.  Just listen to some of this stuff:

There isn't a "tooth fairy," or as my former colleague Milton Friedman repeated time and again, "there ain't no such thing as a free lunch." The government doesn't create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away.
While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.
To see this, imagine an economy that produces 100 apples.

Um, have you ever heard of this Keynes guy?  Krugman and DeLong and Thoma are right; it's honestly like living in the dark ages.  I guess Laffler has been working on modeling the 100 apple economy.  Actually, maybe that's still too complicated.

To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.

Now that we have a nice realistic model of the economy as two frictionless billiard balls rolling around in Art Laffler's head, we can clearly conclude that the best thing would be to cut taxes.  What?  You don't see the connection?  Come on man.  Learn the refrain.  They've been teaching it to you like it was Sesame Street.  The punchline is ALWAYS cut taxes.
My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?

With that out of the way, Dr. Laffler, PhD, can now get down to the serious business of writing tomorrow's op-ed, which of course exposes the scientific inevitability of US budget deficits causing the invisible bond vigilantes to flee US Treasuries and drive interest rates to the moon.  Science is never more fun than when you just get to make it up as you go!

Grotesque.  Irresponsible.  And just plain flat out fucking wrong. 


adam said...

It is interesting that he clearly spells out a zero-sum model of the economy. This underlies a lot of right-wing thinking and is almost a psychological disorder when considering almost all economic growth comes from plus-sum effects of human creativity. They bizarrely fail to understand that it is hard to figure out new ways of turning sand into microchips when you are starving and uneducated. Because there are only 100 apples to go around!!! Jeebus.

Clark said...

It does, however, make a certain perverse sense from within that viewpoint. I mean the basic model of an economy that's in these folks head is of a very mature one operating close to equilibrium, already highly industrialized and undergoing no major social or technological shocks. That probably IS close to a zero-sum game. It's just not close to a real economy, not even the US, and much less, as you point out, a developing economy.