The Norman Transcript

February 28, 2013

Economic history must be examined


The Norman Transcript

NORMAN — Editor, The Transcript:

I marvel at the continued mantra for raising taxes to raise revenue for the national government.

Like too many religious zealots, people like Mr. Milbank seem to believe that if one continues to recite a given explanation, it will become true. Or perhaps, and more likely, he believes that it is true in spite of the economy’s history.

Like so many economic theorists, he believes that economic laws were invented by economists who devise rules that the populace should conform to. This is hubris at the worst level.

The economic rules that work have not been invented by an imaginary god of economics but are only mathematical descriptions of how the populace in general thinks and acts. This is the way that the sciences work. The theories and mathematics that work are just descriptions of what nature is really doing.

The price/demand curve was not a rule made by some economist to tell how the populace should react to the variations in the economy. It is just a description of how the preponderance of the population acts in reaction to the flux in the economy.

The Laffer curve is another example of this fact. Despite the attempt to convince people that it is “voodoo economics,” there is statistical data that proves that it is a good description of what actually happens.

In fact, the shape of the Laffer curve can be derived from human nature alone without recourse to economics. To get the actual numbers, economic history must be examined.

If the tax rate is on the wrong side of the peak, an increase in taxes will cause a decrease in revenue from the earners who are taxed. There are examples in the data from the history of the economics that bears out this concept.

One has only to examine the history of the economy, without any erroneous assumptions,  to see that raising taxes almost always causes a recession and just exasperates the recovery from a depression.

Demand-side economics sounds great when human nature is excluded from its assumptions. But the low inertia comes into play when human nature is added, causing the system to become unstable. Economic history bears this out.

Unstable systems oscillate. Sometimes this is desirable, but not in an economy.

John Baugher

Norman

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