It's 2017 and our official economic and fiscal policy is still, improbably, voodoo.
I don’t take Trump/Mnuchin’s assertions too seriously, but they do suggest they’re uninterested in the parts of their tax plan that were in there to raise revenues, like ending interest deductibility or the border adjustment tax. They also talked about a tax repatriation scheme which, if it’s like past versions, also scores as a money loser.The exasperating thing here isn't just that Laffer has not been proven correct. It's that he has actually been tested and disproven repeatedly using the entire US economy as a laboratory. Economic theory is loaded with hypothetical, imperfect models. Some are useful. Some are not. But for some reason the most ridiculous of these is the one we keep testing. If there were one macroeconomic theory we could most confidently dismiss as quackery, it would be this one. What reason could policymakers have to try and sell Laffer to you at this point? Fuck you. That's the reason.
When asked if he was OK with the deficit increase implied by all that, Trump said, “It is OK, because it won’t increase it for long.” The tax would trigger growth effects that would offset the deficit.
That’s not gonna happen. Yes, they’ll assume phony growth numbers and magic-asterisk-spending cuts to make the pools of red ink appear to be less deep. Congressional Republicans may impose smaller tax cuts than what I suspect the administration has in mind, though I don’t think they care much about deficits either. So we’re looking at larger budget deficits—I’d guess much larger—than are currently forecasted.
By the way, at this point in the interview, the President got into all that “priming the pump” stuff, but that’s not really their play here. Keynesian pump-priming is a temporary fiscal boost to offset a temporary demand contraction. It is designed to boost growth and jobs during the downturn, but we don’t assume that it will boost the economy’s underlying growth rate. Trump and Mnuchin, however, are claiming “supply-side” effects: tax cuts will boost investment, productivity growth, and labor supply, and thus raise the long-term, potential growth rate.
In this regard, they’re conflating Keynes, who’s been proven right, and Laffer, who hasn’t.
If there is one guiding principle of the Trump government, in fact, that would be it. "Fuck you. Why am I even talking to you?" Nothing needs even the appearance of a rationalization anymore. The essence of Trumpist rhetoric is making an argument against having to make an argument. Why reverse the hard fought emerging global consensus on the need for climate action? Fuck you. That's why. Why reboot the widely discredited Drug War and its commensurate policy of brutal mass incarceration? Because fuck you, shut up. Why pretend that "voter fraud" is even a thing? Because... well because we are obscenely racist and we want to suppress the vote... but also because fuck you we don't have to explain anything to you.
Even this week, as cable news makes the Comey affair look all the world like something that could spiral out of control on the, yes, quite dangerously stupid, Trump, it still serves to step back and ask what's actually different. Why are we expecting an explanation now? Does the President have the power and prerogative to unilaterally squash any investigation that might embarrass him? Wasn't Nixon proven wrong about that? Just like Art Laffer, right?