Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.  

Begin Entry #340.  Somewhat buried in this past week’s news was that Bud Abbott awarded Lou Costello the Presidential Medal of Freedom. Well, okay, it wasn’t really Abbott and Costello, but it might as well have been.

The actual players were Donald Trump and Arthur Laffer. If you don’t follow the players in the field of economics, you might not recognize the name Laffer. In the mid-1970s, Arthur Laffer, then working in the Nixon/Ford Administration, but previously a member of the faculty at University of Chicago, outlined for Messrs. Rumsfeld and Cheney (the same two as in the Bush 43 administration) a curve to illustrate the theory that government revenues could be maximized at certain marginal tax rates.

According to Laffer, too high a marginal income tax rate would be a disincentive for people to work and/or invest and tax revenues would fall. If the margin tax rate were too high, then lowering the tax rate would result in the economy expanding with overall tax revenues increasing despite the lower maximum rate.

The Laffer Theory, commonly referenced as the Laffer Curve, was cited as justification for large cuts in tax rates under Presidents Reagan, Bush 43, and Trump. In fairness to Laffer, his theory, which had been discussed earlier by other economists, could be true where a country had exceptionally high tax rates – although too high a tax rate has never been defined – and there was no compelling societal need justifying the higher rates.

Laffer’s Theory should also be considered the foundation for what is known as “trickle-down economics.” However logical Laffer’s theory and “trickle-down economics” might seem, to my knowledge there is no empirical evidence demonstrating the theory is correct.

In the 1950s, for example, maximum marginal income tax rates in the US were 70%. Yet during the 1950’s the labor-force participation rate was very high and the economy was strong. One might argue – and I think fairly – that the very high marginal tax rates were justified by a societal need. The US needed to pay down some of the enormous debt the US incurred during WWII.

More recent tests of Laffer’s theory include the Reagan, Bush 43 and Trump Administrations. What happened to government revenues when the Laffer Curve was used to justify lowering income tax rates in each of those administrations? The economy grew some but income taxes remitted to the Federal government never increased enough to offset the rate cuts. The result was a sharp increase in the Federal debt, both nominally and as a percent of GDP.

The Laffer Theory has been tried in other venues. In 2012 the Republican governor of the State of Kansas, to whom Laffer was an advisor, convinced the legislators to reduce maximum marginal tax rates. The project result, according to Governor Brownback, would be a rapidly growing economy and enough additional revenue to the state to offset the reduced tax rates.

What happened was just the opposite. Like the experience of the Federal government, tax revenues in Kansas plunged. The difference between the State of Kansas and the Federal government is a critical one. Unlike Washington, the State of Kansas is constitutionally required to balance its budget and does not have a Treasury Department that can print money. The only alternative for Kansas was to raise taxes and substantially cut expenditures in such critical areas as education and infrastructure.

Bush 41 called “trickle-down economics” that emanated from the Laffer Curve, “voodoo economics.” The voodoo economics label seems to be widely shared among most well-respected economists, with more than 95% of professional economists rejecting the Laffer Theory.

So why did Laffer receive the Presidential Medal of Freedom? The president has wide discretion in awarding the medal. A recent recipient, for example, was the golfer Tiger Woods.

What struck me as comical was the Administration’s justification for selecting Laffer. The White House press release indicated Arthur Laffer was “…one of the most influential economists in American history.” (Maybe true but “influential” does not equate necessarily to being correct.) Adding to the comedy of the press release were remarks by Trump, who claimed to have studied Arthur Laffer’s theory for many years.

Seriously? Studied for many years? Trump is anything but a student. He’s repeatedly demonstrated an appalling lack of understanding of basics taught in economics 101. While the examples are numerous, a couple of recent economic headscratchers include his claim that tariffs are paid by the country of origin – i.e., tariffs on goods shipped from China are paid by the Chinese. No, Donald, the tariffs are paid by the residents of the receiving country. The receiving country is called the United States and the tariffs are effectively a tax on consumers.

Another head-scratching idea is that world trade must be a zero-sum game; therefore, the US should work toward having a trade surplus with most all, if not all, countries. If that were true, then nearly every country worldwide would make and consume its own products. If I’m not mistaken, Trump’s theory went out millennia ago.   Maybe Trump should study more about such people as say, Marco Polo. Somehow I think Marco Polo was in the international trading business.

What about Trump’s approach to increase US GDP over the long term? Roughly 2/3 of US GDP is driven by consumer consumption. If you don’t increase the number of consumers and/or increase consumption per capita, then GDP is not going to grow and it will gradually decline. As the population ages, consumption per capita decreases and the economy can stall or start to slide — just look at what happened to the Japanese economy beginning in the 1990’s. In the US, the declining birthrate among native-born citizens will result in lower potential GDP growth unless some fundamental changes are made.

One change to help ensure sustained economic growth could be to increase the pool of younger consumers. How does the US expand the pool? The government can’t force families to have more babies. So what about more Immigrants? Wouldn’t more immigrants help offset the declining birth rate?

According to the Trump Administration, the US should not allow more immigrants, especially those entering without visas. Moreover, according to Trump, even the number of legal immigrants should be reduced sharply.

Mmm, this economics game is not so simple. Maybe Trump should have attended economics class more often. Economics seems something like a teeter-totter. Somehow the two sides need to be balanced for the system to work.

What’s the takeaway from this blog entry? Most everyone, well most everyone except Trump’s hardcore supporters, acknowledges Trump is uneducated about many subjects and his decisions are often arbitrary and conflicting.

Maybe the purpose of this entry is allowing me – and I hope some of you – to vent frustration and anger at Trump with his gang of incompetents and enablers. For many years, I’ve studied economics and had jobs where applying economic theory was a key part of a critical decision. In many of those decisions, the financial well-being of numerous families was affected. In my view, and one seemingly shared by many others, Trump’s decisions about lowering income tax rates mostly for the wealthy, efforts to influence the Federal Reserve, restructuring immigration policy could harm significantly the potential for sustained economic growth in the US.

Now, I hope I’ve made the case for why I cringed when Trump awarded the Presidential Medal of Freedom to someone like Arthur Laffer. I cringed not because of Laffer. He had no hand in this decision. I cringed at the thought of what’s going to be the next incredibly stupid decision made by Trump that will have lasting negative consequences for US citizens.

We should all be concerned, regardless of political party. As for Abbott and Costello, my apologies to them for being drawn into the discussion. Unlike the Trump Administration, even Abbott and Costello figured out who was on first.

Post Entry Update: In the week following publishing Entry #340, Eli Broad (rhymes with road), a multi-billionaire, published an Op-Ed piece in the NYT outlining why taxes on the very wealthy should be raised.  Unlike Trump, Broad views a higher-tax rate for the wealthy as necessary to help begin eliminating the growing economic inequities in the US.  Link to comments, 19 06 26 NYT Eli Broad OpEd re Asking to Raise His Taxes.

Comments welcome, as always. Thanks for your time.