Laffer: Laughable As Always

R Davis spends a whole lot of words (and numbers) explaining why Arthur Laffer’s latest WSJ editorial is false and ridiculous, but those who think about data — at all — really only need to read one line. Laffer’s key error — which a high-school statistics student could spot — is to:

compare growth in GDP rates with government spending as a percent of GDP. He is testing for a relationship between two variables but expressing one of them (spending) in terms of the other (GDP).

So when Estonia or Ireland’s GDP drops, its government spending/GDP increases.

This is obvious proof that higher government spending causes lower GDP.

It’s hard to imagine that a well-educated person could not be aware of how specious this argument is. But I’m guessing that he really and truly does not realize it.

Cross-posted at Angry Bear.







2 responses to “Laffer: Laughable As Always”

  1. The Arthurian Avatar

    I have misplaced the clippings and have only my notes from the old computer, but:
    Wall St Journal, 4 Jan 1995 (editorial), and
    Investors Business Daily, 7 Feb 1995, and
    Wall St Journal, 3 March 1995 (page A10)
    all complained about slow economic growth, showed a graph of Federal Spending relative to GDP, and called the graph evidence of excessive Federal Spending.

    The great irony is that the original complaint — slow GDP growth — invalidates the so-called evidence they offer.

    Good post.

  2. Clonal Antibody Avatar
    Clonal Antibody

    @The Arthurian

    This is very similar to the error made by Milton Friedman, that we discussed earlier on your blog