Laffering At Historically Inaccurate Suggestion That Raising Taxes Caused The Great Depression

Art Laffer's claim that low state tax rates are the key to economic growth. What should you think about that claim? That's easy: it's junk economics ~ Paul Krugman (dob 2/28/1953) an American economist, Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times.

What caused the Great Depression? Recently I read an historically inaccurate assertion that it was a tax increase under President Hoover that is to blame; argument as follows...

Libertarian Blogger: The Keynes Curve? ...taxation may be so high as to defeat it's object, and that, given the sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget [Quote from] John Maynard Keynes. Gee, I wonder if he said this before or after Hoover raised taxes 152% and plunged a recovering U.S. economy into a depression. (10/12/2013 AT 9:41am).

Uh, no. The Libertarian blogger I quote above is referring to something that didn't happen. The tax increase under Hoover happened (although I'm not sure where this 152% comes from), but this increase was NOT what caused the Great Depression. The Great Depression was caused by a previous lowering of taxes. Apparently Mr. LB has never heard of the roaring twenties? That was the bubble created by taxes that were too low. It was the bursting of that bubble that caused the great depression, NOT any tax raising by Hoover, as pointed out by the nation's top Progressive Talker...

Thom Hartmann: ...the massive Republican tax cuts of the 1920s (from 73 to 25 percent) led directly to the Roaring Twenties' real estate and stock market bubbles, a temporary boom, and then the crash and Republican Great Depression that started in 1929. (Excerpt from the book Rebooting the American Dream, pub. 2011).

According to Mr. Hartmann the way to prevent bubbles and busts is to keep the top marginal tax rate at 50 percent or higher. History shows us that when Republican administrations (or Dems acting like Republicans) come in with an agenda of cutting taxes, those tax cuts invariably lead to bubbles, like when the bush administration rammed through a tax cut that favored the wealthy via reconciliation in 2003. Regarding that tax cut, Harlan Green of Popular Economics says...

Harlan Green: The Bush tax cuts are the most current example; in fact they helped to cause the Great Recession. For much of the excess profits were spent on market speculation - especially in subprime loans and payday lending to the poorest among us - that caused the housing bubble. (Article: What Happened to the Bush Tax Cuts? Huff Post Business, 06/04/2012).

(Note: Harlan Green has a degree in Economics from UC Berkeley and is the editor and publisher of PopularEconomics.com).

As for Mr. LB's quote from Keynes and his suggestion that he would agree with the Laffer Curve... [1] I'm sure there would be a disagreement between the two regarding what constituted how high taxes would have to be to qualify as "so high", and [2] Laffer and Keynes were both wrong. The Laffer Curve has been debunked.

The Middle Class Economist says "Laffer got it exactly backward, with tax revenue initially falling as tax rates increase, then rising after a further increase in rates". The quoted blog post further notes that Sweden in the 1970s had a top marginal rate of over 100 percent, and their tax revenues went up, not down.

The lesson to be learned from this is that it is tax cuts that lead to bubbles that causes recessions, NOT tax increases. In fact it is a marginal tax rate over 50 percent that stabilizes the economy and prevents bubbles and busts from occurring (or causes them to be less severe if they do occur). That there are some who still argue otherwise makes it clear that no matter how many times we bubble and bust we may never learn. Why? Because the wealthy and their stooges will continually argue the exact opposite of the truth.

The reason being that the wealthy always make out like bandits while the rest of us suffer. A 9/11/2013 LA Times article notes...

Connie Stewart of the LA Times: The Great Recession hit the top 1% harder than other income groups, but the wealthy recovered quicker too. From 2009 to 2012, as the U.S. economy improved, incomes of the top 1% grew more than 31%, while the incomes of the 99% grew 0.4% - less than half a percentage point. (9/11/2013).

Time to adopt the budget of the Progressive caucus that eliminates the deficit and Raises a $31 billion surplus in ten years. Enough of this failed trickle down economic BS (of which the Laffer Curve nonsense is a component).

SWTD #210, wDel #37.