Arthur Laffer in San Francisco

On Thursday night last week, supply-side luminary Arthur Laffer spoke to the Pacific Research Institute’s annual dinner in San Francisco.

Laffer is among the most consequential economists of the last half century. Though lampooned and denounced on the left, his Laffer Curve has had a greater impact on American and global economic dialogue than, say, the entire writings of Nobel Laureate in economics and New York Times columnist Paul Krugman — or most other economists for that matter. With that one bell curve illustrating the trade off between tax rates and revenue collection, Laffer transformed how rational people think and talk about taxes, government finance, and economic growth.

On Thursday Laffer continued his iconoclastic ways. Here are my notes:

*To stimulate the economy, the Obama administration is seeking to redistribute income.

*But by penalizing productive and rewarding unproductive activity, redistribution drives total income in an economy towards zero. [# More #]

*The simple fact is that you can’t change the distribution of income without changing the total volume of income, to the harm of everyone.

*Politicians who make decisions in a panic make bad decisions.

*The White House’s attempt to spend the country into prosperity is a decision made in a panic.

*We have had $3.3 trillion in stimulus spending.

*But there can be no stimulus. With government spending, income effects always sum to zero.

*Yet even though the Democratic Obama administration in Washington is a disaster, the incoming Democratic Brown administration in California has great promise.

*Laffer was Brown’s advisor when – long, long ago — Brown ran for president.

*Brown was the first presidential candidate in either political party to endorse the flat tax.

*You have to be ready for his kookiness on a whole range of issues, Laffer said.

*But on economics, he is a hard-line conservative.

*California is strangling itself with no-growth policies.

*Consider what you might call the U-Haul index.

*The cost to rent a U-Haul trailer for a move from Los Angeles to Austin, Texas, is three times more than the cost of renting that trailer for the same move in the opposite direction.

*Moving to Boise, Idaho? The cost is eight times more than the reverse trip.

*Those prices are a good index of the pressure to escape the state.

*For a state built on entrepreneurship and small business, California has become deeply hostile to all business.

*Brown understands all this and has the strength and skill to turn things around.

*Laffer reminded the audience that he is no longer a Californian.

*Several years ago he moved to Tennessee.

*”Did I mention it has no income tax?” he asked, making the point that high tax states have been losing population and median personal income relative to low tax states.

*Nationally, the Obama administration is making the same mistakes about spending, regulations, redistribution, and taxes that the Hoover and Roosevelt administrations made in the 1930s, with similar results.

*Today we are in the worst recovery since the Great Depression years.

*Hoover hiked the top tax rate from its post-World War I low under Calvin Coolidge to the until-then-unimaginable 63 percent (number is from memory, not my notes).

*Now we are looking at a massive tax increase, when, in just a few weeks, the 2003 Bush tax cuts expire.

It is fair to say that the PRI audience was skeptical about Laffer’s enthusiasm for the governor-elect, as am I. The liberal Bay Area has a robust community of economic conservatives. Conservatives must be clear and strong minded if they are to survive in San Francisco and its suburbs. But they appreciated Laffer’s readiness to look at Brown with fresh eyes, not toeing a party line.

This is a prime political lesson of 2010: for the voters who handed Republicans such a huge national victory (though not one in California), party lines are no longer welcome. Both parties have fallen from grace. These voter’s attitude now is “show me.”

Show me cuts in spending. Show me reduction in tax rates and regulations, renewed respect for rule of law. Show me that you are serious about fixing unfunded entitlement liabilities and reducing national debt. Like Eliza Doolittle in My Fair Lady, they cry, “Don’t sing me songs filled with desire/if you’re on fire, show me.”

Arthur Laffer sang right in tune with that song on Thursday night.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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