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The Laffer Curve: Grizz's First Lesson
#21
Sorry, Victor, but there are many ways to establish what is too much. You don't need the exact number. What is important is the broad historical proofs that Kurt Hauser showed that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." When you understand that Hauser's Law stipulates that raising rates has little effect on total revenue, the Laffer Curve is rather self-evident. The only way that 19.5% stays constant, is for higher rates to create a negative return, and for lower rates to encourage prosperity.

Jude Wanniski was at the dinner meeting with Ronald Reagan, Robert Mundell, Dick Cheney, and Jack Kemp when Art Laffer drew the famous curve on the napkin to give Mundell's explanation of the German Miracle and JFK's economic success the final touch to flesh out his monetary theory. He said at the time that the theory was well-established - but it took a life of its own when it so fully added common sense to Mundell's ideas.

Arthur Laffer Wrote:Since...'79...OK, let's take a look at what happened to marginal tax rates. The highest rate has gone from what -- 70 percent -- down to what, 35 percent? What's happened to inflation? What's happened to regulation restrictions? What's happened to America and the world? What's happened to the stock market? What's happened to everything you and I believe in? Do you remember what unemployment rates looked like back in 1979? Do you remember what the prime was when Ronald Reagan came into office on Jan. 20, 1981? It was 21 percent...

I cannot believe how wonderful it is. When (Nobel Prize-winning economist) Bob Mundell and I sat there at the University of Chicago in 1967, '68 and '69, we dreamt of a world. That world is now. Can you imagine a world with no inflation? Everything that's happened. It's absolutely spectacular. I'm just so happy about what's happened to this world. Don't you feel that way...?

If you looked at (House Minority Leader) Nancy Pelosi and you looked at (Senate Minority Leader) Harry Reid Wednesday night, they looked really, really uncomfortable. They were running everything in 1979. They had the president, the Senate, the Supreme Court, the Fed chairman. They had every damn position in the world. They had everything -- the states, the houses, the governors. It was a Fabian redistributionist nightmare. Now it's really beautiful. I'm an old man, and old men are supposed to be curmudgeons and hate the modern day and love the ancient. But the truth of the matter is, we've won.

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