Arthur Laf­fer isn’t a fan of Key­ne­sian stimulus

On August 5th, The Wall Street Jour­nal ran an edi­to­r­ial titled “Arthur Laf­fer: The Real ‘Stim­u­lus’ Record”. The author, Arthur Laf­fer, is an Amer­i­can econ­o­mist best known for the Laf­fer Curve. The edi­to­r­ial begins as follows:

Pol­icy mak­ers in Wash­ing­ton and other cap­i­tals around the world are debat­ing whether to imple­ment another round of stim­u­lus spend­ing to com­bat high unem­ploy­ment and sput­ter­ing growth rates. But before they leap, they should take a good hard look at how that worked the first time around.

It worked mis­er­ably, as indi­cated by the table nearby, which shows increases in gov­ern­ment spend­ing from 2007 to 2009 and sub­se­quent changes in GDP growth rates. Of the 34 Orga­ni­za­tion for Eco­nomic Coöper­a­tion and Devel­op­ment nations, those with the largest spend­ing spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stim­u­lus.

Regard­ing this nearby table, mon­e­tary econ­o­mist David Glas­ner says the fol­low­ing in a cri­tique of the Laf­fer edi­to­r­ial:

So how did Laf­fer per­form his cal­cu­la­tion? He doesn’t say. All he does is cite the IMF as the source for his table. Thanks a lot, Art; that was really help­ful, but unfor­tu­nately, not help­ful enough to fig­ure out what you are talk­ing about.

Glas­ner is refer­ring to the fact that the table gives the source of the data sim­ply as “Inter­na­tional Mon­e­tary Fund”. It does seem that many dis­cus­sions in the polit­i­cal arena are ham­strung (per­haps pur­posely) by the fail­ure of the author to give a usable source, much less to explain his cal­cu­la­tions. I’ve there­fore taken the time to do what Laf­fer arguably should have done to begin with. (more…)