Paul Krugman Acknowledges the Laffer Curve

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Unleash Prosperity Hotline
Issue #1041
06/17/2024
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1) Paul Krugman Acknowledges the Laffer Curve

Trump's comment last Thursday, that he could use tariffs to eliminate the income tax, has ignited a fury on the left. We think the idea is interesting. It’s clear he didn’t literally mean the entire income tax, but some parts of the income tax could be eliminated.

But New York Times provocateur, Paul Krugman, instantly went on the attack. Here is what Krugman wrote on X:

“Tariffs would raise the cost of imports to consumers, so we'd import less, which would mean you need a higher tariff rate. But this reduces imports further, meaning a still higher tariff, and so on.” Eventually the tariff rate reaches so high there are almost no imports to tax.

Wow!! So what Krugman has explained here is a Laffer curve effect with tariffs. The higher the tariff, the less imports we buy. The more you tax something, the less you get of it. What a concept.

Laffer’s famous curve drawn on a napkin noted that the higher the tax rate on work and investment, the less work and investment you get - and that at very high rates the tax could even produce less revenue.

Krugman has always been dismissive of the idea – but suddenly he’s an accidental disciple. Finally.

Then he asks: "So how is it that in the 19th century, the federal government largely paid its way with tariffs? Because back then the government was much, much smaller. Believing that we can go back to those days is just ignorant.”

Why? Wouldn’t the world be a better place without the modern-day welfare state?

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2) The Compassion Election?

We’ve often said that if the election is about performance, Trump wins. If it’s about behavior Biden wins. Every election since 1980 has been won by the candidate that voters liked better.

This Yougov poll suggests that if Trump behaves himself (be nice) over the next four months, he wins.

But can he?

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3) Where Is the Infrastructure?

When it comes to building things - the Biden administration looks like the Keystone Cops.

We have previously noted that their $7.5 billion EV charging stations program, which promised half a million installations, still has about 499,990 to go after three years. At this pace, it will be 2300 by the time they all get built – at which time we will be flying around on hovercrafts.

Now, here’s the latest scandal. Biden was given over $42 billion from Congress in 2021 for taxpayer-funded high-speed internet hookups. According to Republican Federal Communications Commission member, Brendan Carr, the total number of people connected so far is... zero.

What happened to all the money? Are there any inquiring minds in Congress who want to know?

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4) Video of the Day: We Have Met the Enemy, and It Is “Degrowth”

If there were a complete antithesis of the mission statement of the Committee to Unleash Prosperity, it would be the “Degrowth” movement.

Degrowth believes free markets have led to runaway growth, overconsumption of material goods, and damage to the environment. This is old-fashioned Malthusian/Marxist economics dressed up on stilts.

Thankfully, our friends at Kite & Key Media have prepared an excellent 7 minute video on Degrowth.

Watch the video by clicking below:

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5) Elon Musk on Regulation

At a recent conference put on by our friends at the Cato Institute, Elon Musk shared some incredible wisdom on the out-of-control regulatory environment:

We have created regulatory gridlock, for example, in California. It's basically illegal to build big projects.... We need a 'throw out the garbage' process for sunsetting and removing the growth of regulations in order to let society function and to lighten up the arteries.

Regulations are in my view are largely terrible. A better way would be for companies to pay a penalty if they make a mistake rather than try to restrict them in advance with the limited information regulators have.. it would be profoundly effective for the advancement of contracts.

I think the government should essentially be like the football league assuring a level playing field. It should provide referees to ensure fair play. But now it seems the government has more referees on the field than there are players.

Musk concluded with an idea we heartily endorse. He suggested that "every regulation should be accompanied by the name of the person primarily responsible for it" so we can analyze their expertise, their track record and assign responsibility for failure.

Watch the video below:

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6) Shrinkflation Strikes Again!

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