Thursday 28 May 2009

Is Cameron having a Laffer?

While the MP expenses scandal is outrageous, it’s dominating the news cycle to an extent that isn’t really healthy.

No-one denies the expenses system needs a complete overhaul. People are rightly angry with the liberties our elected representatives have taken, and the fact that some of them are still apparently living in the 15th century (claiming for moats and, um, quarters for one’s servants).

Cameron’s proposed Parliamentary reforms - as Nick Clegg, Simon Jenkins and Sunder Katwala argue - add up to, well, nowt much really. Putting political debates on YouTube and having text alerts for legislative bills is all very well, but does not a reformed Parliament make.

No doubt if Cameron becomes Prime Minister, Parliament will be so thrillingly modern that PMQ’s will be conducted entirely through Twitter, while Cabinet reshuffles will simply be done via text message (Ken u r now Mnstr 4 Trade lol!)

But there are other pressing matters to consider. Let’s not get so het up over subsidising a politician’s predilection for Ginger Crinkle biscuits that we forget to ask exactly where our £37bn of bailout money is going. Let’s also not neglect other little things, such as examining what our politicians actually believe in.

For example, it’s slightly worrying that the leader of the opposition in this country sincerely believes in the Laffer Curve economic theory.

For the uninitiated, the Laffer Curve is based on ‘trickle-down’ economics. The theory, sketched out on a restaurant napkin by Arthur Laffer (probably after having one too many beers) proposes that lowering taxation can actually increase government tax revenues.

Now, regardless of whether you’re on the left or right of the political spectrum, almost everyone agrees that the theory is nonsense. George Bush Sr mocked it as being ‘voodoo economics’. (Ronald Reagan nevertheless got out his best shaman gear as President, put it into practice and subsequently saw the federal deficit balloon from $900 billion to over $3 trillion on his watch).

So despite the fact that the Laffer Curve has about as much credibility as a rehab programme run by Shane MacGowan, Cameron thinks it’s the way to go.

Will the media press Cameron on this?

Don’t hold your breath.


Exit pursued by a bear said...

Can anyone explain to me why the expenses aren't published? Surely only this would stop the drip of daily allegations. I bet The Telegraph can't believe their luck - at this rate they won't have to find stories until September!

The problem is that the political mood now of 'outrage' and 'shock' looks all too shallow. Everyone is rushing to appease the public, but the danger is that this haste is resulting in more empty, cliched and ill thought out proposals conceived in desperation.

ruharper said...

The only sensible thing left to do on the expenses front is to give the whole lot, open-book to TheyWorkForYou, and allow MPs to append as much or little information to their published expenses as they want. The public can then, of course, comment on the results. Some, like Julie Kirkbride, will get a drubbing, others might get the chance to fully explain themselves without the hysteria of an 'expenses scandal', and more transparency (and less attention being paid to Westminster housekeeping) will surely follow...

Paul Prowse said...

Exit pursued by a bear: the expenses will be published in July.

They were always going to be published (regardless of the Telegraph's actions) as the Commons, under Michael Martin, had lost a Freedom of Information case on the matter.

The Telegraph simply paid all that money to break the info of MPs expenses first.

Nick Anstead said...

Whatever Mr Cameron's views on tax, you are a little bit harsh on Professor Laffer's theory, I think, which is far simpler and more eloquent than it is normally presented (including by the 1980s true believers, who largely hijacked it as a rhetorical device to justify tax cuts).

His argument is that at both 0 per cent and 100 per cent tax rates, revenue would be zero. Thus, it follows, there must be a hypothetical point somewhere between the two, where revenue is maximised. This is a theoretical construct rather than a numeric claim - in other words, it could equally be used to justify tax increases, if current rates were to the left of the peak on the curve.

Paul Prowse said...

Hmmm. I take your point about separating the Laffer Curve as a theoretical construct from how its actually been applied in practical policy. (Though even as a theoretical construct, it has its critics.)

What is undeniable is that Laffer’s theories – ‘hijacked' or not – have been disastrous when put into practice. It’s been discredited no matter how much Laffer twists his argument (see: )

Even if you argue it’s still a misrepresentation of the Laffer Curve to automatically equate it with the New Right, Laffer himself can reasonably take some of the credit for that, having been closely aligned with the discredited economics of both the Nixon and Reagan adminstrations (see: )

But the point is this: if Cameron decides to implement tax cuts on the basis of the Laffer Curve – in the belief that this will top up the government coffers - we’re in trouble.

Nobel laureate James Tobin about summed it up when he wrote that: "the 'Laffer Curve' idea that tax cuts would actually increase revenues turned out to deserve the ridicule with which sober economists had greeted it in 1981."

Anthony Painter said...

Interesting historical 'fact': who was at the (in)famous napkin lunch? Dick Cheney and Donald Rumsfeld.

Laffer lunch

Exit pursued by a bear said...

Good point Paul that they will be published in July anyway, as I should have remembered - but still I don't see why this date can't be pushed forwards given the daily damage this is causing at the moment.

This bear would like to stop his pursuit before July...

Bearded Socialist said...

The fact that this central pillar of Opposition economic theory is going unchecked because of the expenses story is a real scanda.
It's a damn shame that this sort of story is the only thing going, while things of real substance such as who will benefit from tax cuts, gets pushed to the side.

Unknown said...

The independent covered it a few days ago.

Paul Prowse said...

yes I link to Hari’s piece in the Independent, as he has (as far as I’m aware) been a lone voice in raising the issue. I’d like to think Cameron’s economic philosophy will come under proper scrutiny - but so far the majority of the media seems content to give him the benefit of the doubt.

richard.blogger said...

The fact that this central pillar of Opposition economic theory is going unchecked because of the expenses story is a real scandal.This whole expenses thing is frightening. Constitutional change should be carefully thought out and soberly applied, not hurriedly applied.

Similarly the £20m or so that is involved in the MPs expenses is small change compared to other areas of government spending like, say, the PFI Army training project. I wished the newspapers would do proper news...