Wednesday, January 12, 2011

And while we're on the subject of R. Reagan ... The Supply Side Claptrap

                                                 "Some crap never ends."  -- Richard Hugo

I take this opportunity to dig up an old column by N. Gregory Mankiw, Professor of Economics at Harvard University.  Sheesh!  Must be a heavy dude....

So back in October of 2009, in the run-up to some form of healthcare reform by the Obama administration, Mankiw sees fit to revive the ghost of supply side economics and the Laughable, uh, check that, Laffer curve, that predicts increased tax revenue with decreased taxes.  (Well maybe not quite like that; I guess it was more like increased tax revenue with decreased tax rates.)  Well, it makes about as much sense my original way.

So Mankiw puts forth the notion that health reform might lower the cost of health insurance to individuals, but at the cost of raising top marginal tax rates.  This is a bad thing, he argues, since high marginal rates cause people to work less hard than they otherwise might, since the extra salary will just be taken in taxes.  To support this theory, he calls upon an anecdote of Ronald Reagan, which I quote from his column.

The starting point for Ronald Reagan was the idea that people respond to incentives. The incentives that he most worried about were those provided by the tax system. According to his budget director, David A. Stockman, Mr. Reagan would regale the staff with stories of how he, as an actor, used to alter his work schedule in response to the tax code.
“You could only make four pictures, and then you were in the top bracket,” Mr. Reagan would say. “So we all quit working after four pictures and went off to the country.”

Well, I dunno; maybe.  I mean the Gipper had a reputation for reliable recollection -- like when he reportedly told Yitzhak Shamir he served in the Signal Corps during WW II, and witnessed the liberation of concentration camps.  (This is controversial; not surprisingly, right wing commentators have spilled much ink to debunk the story; but I stand by it.)  What is a matter of record is that Reagan spent the entire war stateside.

Anyhow, the Reagan tax rate story has evidently become accepted economic theory, since Mankiw finishes his column by noting:

But we should not forget the cost of translating that noble aspiration into practical policy. As a matter of economic logic, President Obama’s goal of universal health insurance cannot help but undermine former President Reagan’s goal of lower marginal tax rates. Future generations of Americans may find health insurance more affordable, but they will also find hard work less financially rewarding.

Wow.  Just wow.  Of course Mankiw is careful with his words, to divorce the fact of lost income (for upper bracket taxpayers) from the macroeconomic consequences of same,  -- namely reduced productivity -- as reportedly put forth by R. Reagan.

Anecdotally the notion that people work less if taxed more does not apply to anyone in my personal circle of acquaintance, but then again I don't hang with the big banksters.  As far as that goes, it would probably do the country some good if those roosters took a few days off.


  1. I have not thought about it that way, but maybe the higher top tier tax rate would limit those fucks on wall street to refrain from risky trades and toxic assets.

  2. I don't think there is much doubt that tax rates may influence the timing of income receipt by rich individuals. But not necessarily effort or total work. I suspect for instance, that lower tax rates increase the probability of early retirement.