Keynesian v. Reganomics Why Higher Taxes Cripple Economeys
Art Laffer creator of Laffer curve – taxes could be lowered while generating tax revenue. This model is based on a tax rate from 0 to 100% using the theory of taxable income elasticity. Critics argue it’s too simple and that a single tax rate or labor supply is not static.
It is noted the Laffer does not take credit for this model claiming it was a composite from several other people such as Muslim philosopher Ibn Khaldun (1377), and Keynesian economics.
Laffer worked for Regan as his economic adviser is a well renowned pundit who explains that Kaynes made these claims how to get government to spur economic growth stated his principles but Keynes died before he could go back and correct the misguided people and his followers exaggerated the amounts for their own interest.
The Laffer curve was using to inspire Regonomics and the Kemp-Roth Tax Cut of 1981, claiming the tax cut would increase revenue. This is when the marginal tax rate fell from 70% to 31%. This was also referred to supply side economics since the Laffer curve was not taken seriously.
John Maynard Keynes (1883-1946), creator of Keynesian economics- saving money would lead to supply glut therefore less money spent resulting in higher unemployment. This is a basic explanation how government that is going to prime the economic pump has to do so in a very specific way, short term, while paying down the debt.
Classical economist argued interest rates would fall from excess of supply of “loanable funds.”
Keynesian economics trends toward another problem called stagflation – a faster increase of amount paid for goods during a decline of growth. These are derived by two problems.
First being production is reduced by unfavorable supply shock, social or political policy change, acts of war, extreme restrictive government; such as the rise of oil prices while the economy slows.
Second is the excessive printing of money; like the central or federal government printing money to stimulate the growth of the economy. This was seen during the 70’s oil crisis and in 2006 to 2008. This also creates a new problem of a societal crisis of the 21st century phenomenon called the “weapondollar-pertodollar coalition” creating or using the Middle East crisis to benefit pecuniary interest.