Just like Phil Gramm (#28), the example of Art Laffer shows the enormous support the central planners at the Federal Reserve enjoy from all side of the political spectrum. Like Gramm, Laffer is often described as a free market economist. Indeed, Laffer is the namesake of the “Laffer Curve,” and the Laffer Curve figured prominently in the tax cutting proposals of President Reagan in the 1980s.
However and in spite of being considered a “conservative” economist, Laffer’s economic theories are based on the keystone fallacy of liberal Keynesian economics – the confusion of money with wealth. This is the fallacy that lies at the root of the erroneous beliefs in an all-powerful central bank, the salutary benefits from public works spending and, incredibly, the great economic boom that is always produced by mankind’s supreme act of folly and destruction - war. Here is Laffer in August 2006 debating Peter Schiff on CNBC. In this debate Laffer has clearly been blinded by the illusion of “wealth” measured in home prices, and is completely clueless to the enormous housing bubble which had been deflating for over two years.
Art Laffer: “What he is saying is that savings is way down in this country but wealth has risen dramatically - the United States economy has never been in better shape…”
Peter Schiff: “It is not wealth that has increased in the last few years. We haven’t increased our productive capacity. All that has increased is the paper value of our stocks and real estate, but that is not real wealth.”
Art Laffer: (interrupting): “Of course it is!”
Laffer went on to bet Schiff “a penny and your honor” on whether the economy would go into a recession. Like everyone else with economic degrees from elite colleges, Laffer never learned enough to admit he was wrong. Laffer welched on this bet.
See Phil Gramm (#28) for another “free market conservative” that is anything but. See Paul Krugman (#31) for the terminal stupidity of all modern economic theories and its confusion of money as wealth – the concept that war is a great economic boom for society.