Open Thread: No Free Lunch?
In today's WSJ, Art Laffer critiques the stimulus package:
"In this world of ours, those resources going to the rebate recipients don't come from the Tooth Fairy. They have to come from workers and producers. If the resources come from workers and producers who thereby receive less for their work than they otherwise would have received, won't they in turn spend less? Of course they'll spend less, and the people who now supply them with less will also spend less, and so on down the line."
Now, I have no real love of this stimulus package -- why $300? Why not $3,000 or $3,000,000? -- however, since it was written, by the father of supply side economics, I knew there had to be something amusing to be found in it. Art Laffer did not disappoint:
As my former colleague and friend Milton Friedman liked to say, "There's no such thing as a free lunch," and this rebate is exactly what he meant. The net effect is that the reduction in demand from those who pay the real resources will be exactly the same size as the increase in demand from the rebate recipients. It's sad but true. Income effects always net to zero in a closed system."
A rather unintentional howler. You see, one of the arguments the Supply-Siders have put forth is that tax cuts pay for themselves. (This has since been thoroughly debunked).
That's rather ironic: The latest bunch of free-lunchers, are being called out as, well, a bunch of free-lunchers, by the original free-luncher! Apparently, its only a free lunch if it involves tax cuts, not if it involves spending.
Why do these folks keep forgetting: TANSTAAFL!
~~~
Tax cuts, stimulus spending -- any of it a free lunch?
What say ye?
>
Source:
That 'Stimulus' Nonsense
ARTHUR LAFFER
WSJ, February 13, 2008; Page A27
http://online.wsj.com/article/SB120286935977964221.html
Wednesday, February 13, 2008 | 07:00 PM | Permalink
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» Hilarity from Laffer from Zeroization
The Big Picture has a hilarious quote from Art Laffer (yes, that Laffer) about the tax rebate. Ironically, he doesnt like it.
... [Read More]
Tracked on Feb 13, 2008 11:51:33 PM
Comments
For those who don't believe in a free lunch, I submit exhibit 1:
Food Stamps.
Posted by: Pool Shark | Feb 13, 2008 7:14:35 PM
Laffer should be strung up for what he's done to the social contract.
Moron.
Posted by: donna | Feb 13, 2008 7:21:00 PM
"In this world of ours, those resources going to the rebate recipients don't come from the Tooth Fairy. They have to come from workers and producers."
The Fed just creates the money out of thin air to pay for the government securities and they return the interest to the government, and then the other banks in the system can increase the money supply 9+ times (150 billion rebate can increase the money supply by 1.35 trillion or more) and earn usury interest on sub-prime loans and credit card debt which are from the money they create.
There really is a tooth fairy, but she usually only visits Citigroup, Morgan Stanley and Bank of America as they suck us dry.
And that shmuck Laffer knows this, but he is just a parasite of those getting rich off the current system, and it just hurts so much when the tooth fairy cheats on them, even if they still make a buck.
Maybe he worries the tooth fairy will spill the beans and let the people know that great Wizard is just a small old man behind a curtain.
Time to throw the money changers out of the temple.
Posted by: PFT | Feb 13, 2008 7:29:47 PM
No such thing as a free lunch? Sure there is, tell a rich man what he wants to hear and the next thing you know a menu is in front of you.
Posted by: Bruce F | Feb 13, 2008 7:30:08 PM
Some should tell Arthur that the money for the stimulus is coming from workers and producers in Asia, who will be paid back with cheaper dollars in the distant future, so not to worry! -).
Posted by: godot10 | Feb 13, 2008 7:31:11 PM
Reducing tax rates are only revenue neutral if they are above the optimal rate, otherwise a %100 tax rate should bring in %100 percent of GDP, and nobody could be so stupid as to believe that. I have never seen any studies that show what that optimal rate is, but I believe it is %20. Any claim that revenues during the Reagan administration would have been higher with higher rates can't be proven, since you can't prove that growth rates would have been the same.
Posted by: Robert | Feb 13, 2008 7:34:24 PM
Well interesting that the supply siders think all you have to do is cut taxes, and by act they increase spending. The end result is DEBT.........
http://www.businessweek.com/ap/financialnews/D8UOVLE82.htm
WE are looking at over a $400 billion Federal budget deficit this year.. This brings the total increase in Federal DEbt to over nine trillion, almost doublt in 8 years. What a deal, what an accomplishment. So why shouldn't borrowers and lenders act as it debts don't matter, that is what our leaders say. Why worry about debt, just spend, start wars and be happy. Some body someday will pay the debt, but it makes us feel good now.
Posted by: DebtsDon'tMatter | Feb 13, 2008 7:47:55 PM
Rebate checks = bank bailout
The rebate money is going straight to the credit card companies as soon as it comes in. What free lunch?
Posted by: FT Woods | Feb 13, 2008 7:51:29 PM
Supply side works on the revenue side, unfortunatly the government pork part of the equation is what gets us in trouble.
"No such thing as a free lunch? Sure there is, tell a rich man what he wants to hear and the next thing you know a menu is in front of you."
LOL
Posted by: kk | Feb 13, 2008 7:53:06 PM
Laffer actually got it right in the late 70's early 80's. That was an inflection point. Taxes WERE too high and a lot of companies used very bad accounting to volantarily paid too much. FIFO inventory comes to mind. A lot of the economy was 'underground' and tax reductions made some of it emerge. ( The IRS also contributed ). But to imply that ALWAYS reducing tax rates increases Uncle Sugar's coffers is just plain naive at best.
Arther has succumbed to the celebrity syndrome but I guess when you're pushing 70 you need all the edge you can get.
He was never considered a serious economist in my opinion. He simply stated the obvious.
The stimulas package will debase your money. I recommend you spend it before it does.
Posted by: Ross | Feb 13, 2008 7:55:20 PM
Not that the U.S. is Argentina, but I just remembered when I visited Argentina in May, I commented to some locals that there seemed to be a lot more newer cars on the roads since the last time I was there (2001). They said yes people have new cars, but the only reason people bought new cars was b/c of government refunds to those who did! And so what, sure we've got new cars and it's not as bad as in '02, but most people still struggle to have a good meal.
What a sad day it is when the U.S. has to resort to Third World economics.
Posted by: Shane | Feb 13, 2008 7:58:22 PM
Yes, yes I'll definitely spend my refund money. Thank you very much Uncle Sam, I'll trade in a couple of your worthless Franklins for something with some value.
Hi, ho silver away!!!
Posted by: Shane | Feb 13, 2008 8:00:55 PM
here is what "ye" would say:
"Income effects always net to zero in a closed system." AND "substitution effects accumulate"
actully he did say this, but in a different context. the reason marginal tax cuts and rebates dont compare is because a marginal tax cut sparks substitution effects (substitution of now more valuable labor for less valuable leisure). rebates dont spark any such effects (nobody substitutes labor for leisure because they got $600). in the case of marginal cuts growth was stimulated, in the case of rebates wealth and spending was redistributed. net gain vs. zero-sum.
by the way, no supply-sider claims that tax cuts pay for themselves. some have claimed that some cuts may, while most certainly dont. its sloppy to attribute positions to people who dont hold them
Posted by: David | Feb 13, 2008 8:17:32 PM
Laeffer is right about the stimulus & not totally wrong on tax cuts.
Tax cuts don't necessarily pay for themselves, but lower marginal tax rates (accompanied by gov't spending restraint) encourages lots of productive activity that leads to economic growth. Would you argue with that?
Posted by: algernon | Feb 13, 2008 8:20:37 PM
DebtsDon'tMatter,
"WE are looking at over a $400 billion Federal budget deficit this year.."
That doesn't include the real funding for the Iraq and Afghanistan military missions, which is a couple hundred billion. It includes a couple hundred billion in cuts the administration assumes for Social Security & Medicare, which will never happen. And it is masked by hundreds of billions of surpluses in the Social Security & Medicare trust funds, which by federal statute can only be utilized for Social Security & Medicare.
The actual federal budget deficit is over a trillion dollars, and rising.
.
Posted by: VJ | Feb 13, 2008 8:41:32 PM
David,
"by the way, no supply-sider claims that tax cuts pay for themselves. some have claimed that some cuts may, while most certainly dont."
All Supply-Siders indeed claim that tax rate cuts result in increased federal income tax revenue.
It's never happened.
.
Posted by: VJ | Feb 13, 2008 8:44:50 PM
Laffer got his lunches mixed up.
The CURRENT stimulus will be paid by FUTURE tax revenues (plus interest).
Apparently Arthur has no concept of the fourth dimension, which is unfortunate for an Economist.
Posted by: NoFate | Feb 13, 2008 8:46:55 PM
algernon,
"Tax cuts don't necessarily pay for themselves, but lower marginal tax rates (accompanied by gov't spending restraint) encourages lots of productive activity that leads to economic growth. Would you argue with that?"
Yes.
It's never happened.
.
Posted by: VJ | Feb 13, 2008 8:47:45 PM
You used to be able to find the year over year difference in the debt (not the phony "deficit" as noted by VJ above) here:
http://www.publicdebt.treas.gov/opd/opdhisto4.htm
But guess what? The Bush administration took it down... but point you to another site:
http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm
..but guess what? That site ENDS the debt accumulation in 1999.
The Bush administration covering their tracks.
The supply siders have always said their tax cuts will cut the deficit. Always. And they're always wrong. Always.
Posted by: VennData | Feb 13, 2008 8:55:40 PM
Worried Bankers Seek to Shift Risk
The banking industry is shopping proposals to Congress that could shift some of the risk for troubled loans to the federal government.
Liquidity reform
The credit squeeze requires a rethink of banks’ access to cash based on the fundamental principle that liquidity cannot be free.
Posted by: glory | Feb 13, 2008 8:56:15 PM
I'll just spend my rebate check down on K Street buying a couple of good-looking whores. If it helps the economy, so much the better. No contraction here.
Posted by: Denny Crain | Feb 13, 2008 8:56:39 PM
Let me preface my question by saying I'm completely ignorant of the particulars of the 'stimulus package'.
I've heard that the rebate checks are supposed to be an advance of your year-end tax refund. But is it also true that there is something that will reduce your 2008 taxes by the same amount as the rebate check?
Posted by: Josh | Feb 13, 2008 9:04:27 PM
there is such a thing as a free lunch, for those that get the free money in their hand first, get to spend it before the money becomes inflated.
Posted by: rickrude | Feb 13, 2008 9:20:03 PM
Not quite a free lunch. The american consumer goes to the lunch counter, gets a lunch on credit thanks to his father's great credit history and leaves the bill for his son.
Posted by: Doug | Feb 13, 2008 9:26:33 PM
So, we are going to put out the fire in the Hindenburg by pumping in more hydrogen?
Posted by: Winston Munn | Feb 13, 2008 9:34:28 PM
