Arthur Laffer has met his match.
The controversial economist is best known for his claim that governments can raise all the revenue they need by cutting the revenue they need.
The nation and states such as Kansas have tested his theory. They cut taxes because Laffer promised that reducing the burden on taxpayers would spur so much new economic activity that government revenues would increase, rather than fall.
In Kansas, the experiment spurred not economic growth but, instead, a billion-dollar hole in the state budget.
At the federal level, the Laffer experiment during the Reagan years spurred one of the largest increases in government debt in the country’s 200-year history.
But Laffer and his fans continue to peddle their economic elixir. Rather than admit the theory is wrong, Laffer’s crowd blames their rivers of red ink on former President Barack Obama, or the Federal Reserve, or Democrats, or China, or whatever scapegoat is handy.
Regardless of who gets the blame, the result is the same, leaving sensible people to conclude that Laffer and those who push his malarkey, such as President Donald Trump, don’t think deficits and debt matter. Pile ‘em up and hope for the best.
This is surprisingly similar to the trendy economic theory called MMT, or Modern Monetary Theory.
Bloomberg Businessweek explains the concept this way: “MMT proposes that a country with its own currency, such as the U.S., doesn’t have to worry about accumulating too much debt because it can always print more money to pay interest. So the only constraint on spending is inflation, which can break out if the public and private sectors spend too much at the same time. As long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment and achieve goals such as halting climate change.”
Predictably, Republicans pretend to be aghast at such notions. They paste a “socialist” label on anyone or anything connected to MMT.
Then they turn around and vote for $1 trillion annual deficits.
That’s right, this year, the United States government will spend $1 trillion more than it generates in revenue. Trump and congressional Republicans and Democrats also recently agreed to a budget deal that will push annual deficits higher in coming years.
Those annual deficits accumulate. So as of July, the federal debt stood at $22 trillion and growing. The interest on all that borrowed money will eat up more and more of the federal budget, year in and year out, for untold generations.
In their budget deal, Trump, Republicans and Democrats also agreed to “suspend” the debt limit until after the next presidential election. This allows them to campaign without fear of looming debt limits or government shutdowns.
It’s easy to see why MMT and Laffer’s tax-cutting theories might be politically popular. We all like the idea of paying fewer taxes, just as much as we like the idea of buying everything we want and not worrying about the bill.
But such economic bilge doesn’t get a lot of respect in reputable economic circles.
In testimony before the U.S. Senate in February, Federal Reserve Chairman Jerome Powell said: “The idea that deficits don’t matter for countries that can borrow in their own currency, I think, is just wrong. We’re going to have to either spend less or raise more revenue.”
A native of Garden City, Julie Doll is a former journalist who has worked at newspapers across Kansas.