Laffer Redux 

Those of us with relatively long memories will recall the vogue of "supply side economics" that existed in national government for a brief spell in the early Reagan years — roughly from 1983 to 1986 or so, when a combination of traditional Republicans and resurgent Democrats imposed a more familiar brand of economics, one in which income (revenues) were made to equate as closely as possible with out-go (spending).

Before that happened, however, the ideologues in the administration of President Reagan got to operate fairly freely on the assumption that public demand was not the major motive force in market economics, but that boosting financial advantages to producers, more or less in advance of production, was a better way to go. The shorthand name for this was the aforesaid supply side economics, and the practical import of it was a reliance on tax breaks for corporations and big business ("job creators" in today's lexicon) in preference to stimulating the demand side and taking care of the social safety net.

In fairness, the jury is still out on supply side, though it is a matter of fact that its initial severities in the workplace were a contributing factor to an immediate economic stagnation that may, in fairness, have also owed something to the inflation that had occurred late in the preceding Carter administration.

The relevance of all this to today's Memphis and Shelby County? It was spelled out Tuesday in a talk to the Memphis Rotary club by Shelby County trustee David Lenoir, who, if not exactly a supply sider, is definitely an admirer of both Reagan and Art Laffer, the economist whose views animated supply side economics. Lenoir, who boasted some impressive statistics regarding his office's improved ratio of revenues (i.e., tax collections by the trustee) to expenditures, invoked for the Rotarians the Laffer Curve, which holds that zero taxation equals zero revenues and that 100 percent taxation also produces nothing in the way of revenues and that, consequently, there is an ideal point along the curve of taxation whereon the positive effects of both taxation and governmental restraint are maximized.

The reason why the supply siders failed to make their case in Washington was the same reason that pure Keynesian economics (which advocates stimulus spending) came under suspicion. Both methods tended to produce federal deficits year after year.

The reason why attention to the Laffer Curve may be relevant to the budgets of Memphis and Shelby County now (and both of these are currently undergoing preparation — and debate) is that these local government budgets are required by statute to be balanced. Perhaps, indeed, there is an ideal point at which government expenditures and governmental services can be put into a best-case scenario, if not a perfect balance. The absence of deficits means that nobody is getting leftovers at the expense of somebody else. That kind of zero-sum accounting wouldn't work for businesses, which must at all costs show a profit. It may work just fine for the ecology of taxpayers and their service providers.

Local government may not be the sphere Art Laffer had in mind, but it may be where — and only where — his method works.


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