Christine is Laffing at Us

When sailing through an ocean of troubles, one needs, at least, a map and compass. When that ocean is a nation's public policy, the compass is the ethos of the administration and the map is its knowledge of history.

I have restricted myself to one Sunday morning political chat show, most often "Meet the Press", which I watched today. The administration visitor was Christine Romer, Chair of the Council of Economic Advisors. For most of her disquisition, she said the expected things. Then, toward the end she channeled Arthur Laffer. To put it mildly, We are not amused.

For a longer explanation, follow the link above. In simple terms, Laffer conjured a reasoning for Reagan to set in motion the decisions which have led us to our Great Recession. Again, in simple terms, supply side economics, Laffer's conjuring, posits that when in recession, public policy should be to pass funds to business on the assertion that business will use such funds to produce more product (supply) which will then be bought (demand). What Laffer, and apparently Romer, ignore is that this approach (otherwise known as trickle down economics as described by Galbraith as dating back to at least 1890) has never worked. Nor can it. If there were such a thing as supply side, recession would never occur.

The essence of supply side is that producers will always produce if costs are low enough. But costs are never "low enough", and the outsourcing mania of recent years has shown what is obvious, shifting funds to producers in the face of lagging demand only puts the funds into the pockets of producers in the form of overhead costs or outright profits. If supply side were viable, the shift of national income to the top 1% from Reagan to Bush II would not have been 8% to 24%.

But Laffer's Curve was just a stalking horse for income re-distribution. And it worked like a charm. If Romer gets away with this rhetoric, and convinces Obama that it's correct, heaven help us. Obama's compass, to the extent that one feels it has held consistent, points toward populism; Romer shifts its direction toward the very pirates' lair that sent us into the Dead Latitudes. The map tells us that we will be back in the Dead Latitudes if we follow her altered compass. Do not do that.