GALLERY GUIDO: Osborne, the Laffer Curve and the Left

There’s a Computable General Equilibrium Model at the Treasury. If it were made of string and resin it wouldn’t be any less reliable, but its predictions about the cut in corporation tax are likable, so let’s quote them.

The Treasury select committee told us the computer is forecasting corporation tax going from 28 pence to 20 pence will increase GDP between 0.6 and 0.8 per cent, and will increase business investment from 2.5 per cent of some damn thing or other to 4.5 per cent.

It’s “a quiet revolution” George Osborne says, of this example of the Laffer Curve in action.

This curve is still mocked by the left. But it has an interesting pedigree.

An early exposition from the 1930s put it like this:

“Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.”

That is – the budget can be balanced by reducing tax not increasing it.

“For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more—and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.”

“The act of a gambler” to reduce taxation. “A dangerous experiment” as it might be said. An ideological leap into the dark. These criticisms are still made by the left, and even by Red and Redder Eds.

The author of the proposition was one of the few economists capable of writing a phrase like “the rectitude of plain arithmetic”. But then he wasn’t an economist from birth.

It was John Maynard Keynes.




Tip offs: 0709 284 0531
team@Order-order.com

Quote of the Day

Jo Swinson on Chris Rennard…

“Vince — and Tim before him — have repeatedly, publicly said Rennard is not welcome anywhere near their frontbench team, even as an adviser. I remain deeply frustrated that he was not expelled from the party through its disciplinary process. It just feels wrong, and I do not want Lord Rennard to continue as a member of the party. As far as I am concerned, he is not welcome.”

Sponsors

Guidogram: Sign up

Subscribe to the most succinct 7 days a week daily email read by thousands of Westminster insiders.
EU Game Teaches Kids to “Collect More Taxes” EU Game Teaches Kids to “Collect More Taxes”
Kezia: I’m A Hypocrite, Get Me Out of Here Kezia: I’m A Hypocrite, Get Me Out of Here
Siemens to Cut European Jobs, Expand in UK Siemens to Cut European Jobs, Expand in UK
WATCH: DD Meets Cliff Edge WATCH: DD Meets Cliff Edge
Momentum Plot to Treble Council Tax For 15,000 Households in Bristol Momentum Plot to Treble Council Tax For 15,000 Households in Bristol
75% of European Medicines Agency Staff Want to Stay in London 75% of European Medicines Agency Staff Want to Stay in London
Newsnight’s Royal Farce Newsnight’s Royal Farce
MPs’ Security Costs Rise 1395% MPs’ Security Costs Rise 1395%
Just 12% of MPs Vote to Stay in Customs Union Just 12% of MPs Vote to Stay in Customs Union
WATCH Scottish Labour Leader: “I Support England” WATCH Scottish Labour Leader: “I Support England”
Majority Think Work Porn “Career Ending” Majority Think Work Porn “Career Ending”
Paperchase Faces Backlash After Bowing to Anti-Press Freedom Cranks Paperchase Faces Backlash After Bowing to Anti-Press Freedom Cranks
WATCH: Moment Stephen Kinnock Realises Corbyn Is Staying WATCH: Moment Stephen Kinnock Realises Corbyn Is Staying
New Scottish Labour Leader’s Old Boys’ Black Tie Dinner New Scottish Labour Leader’s Old Boys’ Black Tie Dinner
Labour Outsources Flashy New Website to Bernie’s US Consultants Labour Outsources Flashy New Website to Bernie’s US Consultants
Unilever’s Remain Ultra CEO Threatens to Drop London Listing Unilever’s Remain Ultra CEO Threatens to Drop London Listing
Hammond Re-Announces Existing Tory Housing Policy Hammond Re-Announces Existing Tory Housing Policy
Stanley Early Favourite to Win I’m A Celeb Stanley Early Favourite to Win I’m A Celeb
Sunday Show Highlights Sunday Show Highlights
Royal Mail’s Tweets Deliver Truth About Nationalisation Royal Mail’s Tweets Deliver Truth About Nationalisation