by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Economist Arthur Laffer was on Capitol Hill last week pitching the “Laffer Curb.” It’s a strategy aimed at preventing our trading partners from engaging in currency manipulation, which arguably has cost the U.S. many millions of jobs.
Laffer, 74, is best remembered for the “Laffer Curve,” which he scribbled on a napkin in 1974 to illustrate the negative effect of high tax rates on government revenues. If you hike taxes beyond a certain rate—a sweet spot, so to speak—then you end up collecting less revenue, he argued. …
… Laffer argues that currency manipulation is as much an obstacle to free trade as tariffs and protectionist regulations. Politicians promote currency devaluation in the mistaken belief that it will boost their country’s economy through increased exports. In fact, he argues, their subsidization of exports causes long-term economic damage. This, he argues, is why Japan’s stock market valuation nowadays is only 7% of the world’s total, versus 42% in 1988.
So why do countries keep doing it? When I asked this of Laffer, who is as driven as a preacher, the partisan hackles rose on his neck. “Ask yourself about Obama! Why does he keep doing what is silly? Whoever heard of a poor man spending himself into wealth? It’s dumb. But we try stimulus spending all of the time. Whoever heard of an economy being taxed into prosperity? The only place you can find this is among professors at Princeton. It’s crazy!” says the Stanford University Ph.D.
LAFFER SAYS POLITICIANS fail to appreciate that consumption is as desirable as production in fostering a healthy economy. They develop a mercantilist mind-set, he says, and conclude that prosperity rests solely on expanded exports.